As per recent World Gold Council reports, the gold loan outstanding in India is expected to reach Rs. 4051 billion in 2021, from Rs. 3448 billion in 2020. While most other organised lending sectors are struggling to uphold their growth trajectory, the gold loan market has managed to surpass all barriers to expand exponentially.
What can be the reason driving this growth?
The incessant surge in gold rates has a lot to do with this expansion in demand, as the higher loan value allows borrowers to fetch more funds against the same collateral. In August 2020, the price of gold hit its highest ever at Rs. 56,191 per 10 grams. Consequently, those seeking to avail funds by pledging their gold items also managed to secure a high amount against them.
Apart from the high amount that can be availed under a gold loan, several other factors contribute to its demand. Therefore, apart from the gold price, one should also pay heed to the following key aspects of a gold loan.
Factors that contribute to increasing demand for gold loan
In India, during a monetary crisis, pledging old ornaments as collateral and acquiring funds against them is quite commonplace. Since it is a secured credit facility, one gets to obtain a substantial loan amount without having to fret about the eligibility criteria and documentation process. Therefore, to handle the present economic situation better, individuals are inevitably relying on their gold assets to acquire funds and meet financial requirements.
If you are on a hunt for the best gold loan, it is crucial to know about these factors that contribute to its popularity.
High loan amount without end-use restrictions
One of the biggest advantages of gold loans is its no end-use restrictions feature which enables borrowers to utilise the acquired amount to cover all types of expenses. Also, when the gold rates increase, it aids borrowers to obtain a high amount against their gold ornaments.
It is imperative to note that the loan amount might vary across lenders as it depends on the LTV ratio. However, according to RBI’s current regime, financial institutions can offer LTV up to 75% against gold items. It is, however, recommended to assess your repayment capacity before applying for a gold loan.
Tenor and interest rates
The secured nature of gold loans enables prospective borrowers to opt for a high sum of up to Rs.1 crore at moderate interest rates. However, the rate of interest is bound to increase if the market price of gold shifts upwards. It is necessary to compare different lenders as these rates generally vary.
The loan tenor for this particular credit facility is not that lengthy and generally ranges from 12 to 36 months. This further helps borrowers to quickly get rid of their debt burden and manage other liabilities better. Make sure to choose your loan tenor wisely, as any missed payment might affect your credit history and keep you away from availing of credits in the future.
In the case of gold loan, the repayment methods are much more flexible than other loans. Renowned NBFCs like Bajaj Finserv offer a wide range of repayment options to make the process convenient for borrowers. You can either choose the traditional EMI process or pay the interest quarterly or monthly and repay the outstanding amount towards the end of your chosen tenor.
Some lenders also offer a part-prepayment facility where you can settle your loan amount in part without paying additional charges. Such details are generally available on the online portals of reputed financial institutions. So borrowers planning to opt for an online gold loan should go through these details beforehand.
Apart from these, borrowers should keep in mind that financial institutions check the purity level of the gold and sanction the loan amount accordingly. Some of them also come with an overdraft facility on your gold loan. It allows you to spend as per your convenience while the interest rate gets levied on that specific amount only. With all such benefits, gold loans were always in demand among Indian customers, and the market is expected to reach Rs. 4.6 lakh crore in FY22.