It would be an understatement to claim that Indians have a soft corner for gold. Gold is used for a variety of purposes in India. It is a popular asset class, is used in ornaments and given as gifts. India’s garrulous appetite for gold is highlighted by the fact that it is the largest importer of gold in the world. Over the last year, there has been a 25% increase and it is predicted that prices may still rise. Today, the price of gold has reached sky-high with only 10 grams being worth about 42 thousand rupees, it’s not wrong to presume that it’s time to reap onto your prior long-term investment.
Indians also prefer taking loans against gold. According to a report by a leading consulting firm, the gold loan market in India would be worth an astounding Rs 3.1 lakh crore.
Reasons why loans against gold is a benefit for the customer:
Rapid processing of Loan
Gold being such a valuable commodity, the usage of gold to pawn for money makes the process a very quick and easy process. If one requires money quickly, for example for an investment, or an emergency, cash for gold is one of the best ways to get that money as quickly as possible.
Thus, sparing you the headache to go to the bank and fill in hundreds of documents for your loans.
Simple Repayment Procedure
The process of keeping a highly valuable commodity as collateral has the benefits of the process of acquiring it back even easier. To get your commodity back, all you must do is pay back the gold loan amount along with the applicable interest, and without any further hurdles, you will be returned what the bank owes you.
The concept of banking works on the principle of risk. This is the reason why the idea of a credit system was established; it helps the bank decide what investments they place would be risky and what would not be. Using this system, they can establish who should and who shouldn’t pay more or less interest for the same loan. But, when it comes to loan against gold, the usage of gold as collateral, the risk factor for the bank decreases, thus you can enjoy a low-interest rate on your commodity.
Similar to the low-interest rates, this point combines every point written above. With low interest rates, high efficiency, simple procedures, the processing fees for pawning gold is considerably lower than a loan without collateral. The idea of processing fees is to compensate for the manpower behind the job done by the employees of the bank. As, at the end of the day, the bank has to pay its employees. The job of collateral decreases the amount of manpower, thus having a smaller processing fee.
No credit score required
Most loans require the borrower to have a healthy credit score. A low credit score ends up being problematic for many borrowers. Due to a low credit score, they may either be denied a loan or would have to avail of a loan at high-interest rates. Therefore, they either have to delay their purchase or depend on informal sources of funds which could have prohibitively high-interest rates.
However, in the case of a gold loan, gold is kept as collateral by the lender. Hence credit score isn’t required. Therefore, even a borrower with a not-so-healthy credit score can borrow funds at reasonable interest rates.
No Income Proof required
For various types of loans, income proof is required from prospective borrowers. Therefore, it could be difficult for an individual with lower income to avail of a loan. Even if loans are approved in such cases, the interest rates are usually higher.
However, when one takes a loan against gold, gold is treated as collateral. Thus, individuals across socio-economic categories can avail of a gold loan without incurring very high-interest rates.
To summarise, loan against gold is a fantastic option if:
- The borrower requires funds immediately
- The borrower doesn’t wish to depend on credit score
- The borrower doesn’t wish to deal with paperwork
- The borrower can use gold as collateral
Thus, the borrower can approach a credible financial institution and avail of a gold loan with a low-interest rate.