Physical gold has always been a preferred investment avenue for most Indians thanks to the sentimental value. Globally, too, governments have used gold as a standard against which money is printed, though this is not in practice now as widely as before. This affinity toward the product has led to kilos of gold jewellery lying vacant in every household in India without giving any monthly or yearly return. But this has a silver lining, too, as most Indians use this asset to pledge and get quick loans instead of going for other forms of credit such as personal loans and credit card loans.
There are lengthy procedural formalities followed by financial institutions while giving out personal loans. But when it comes to giving a gold loan, the processing time is a lot quicker, with loans being sanctioned within a few minutes. The loan amount depends only on the value of the pledged gold, and the bank will not bother an individual on his or her income or previous credit scores. Though there was a fall in gold prices in 2013 and 2014, there has been a steady increase in gold prices in recent months and that’s good news for people who have stored gold in their house.
From a lenders’ perspective also, the financial institution feels secure to lend against a security compared with a loan applicant backed without any security. Generally, gold jewellery is a good security for a bank and in case of non-payments of dues the bank can always auction the gold and realise its dues. An individual can avail 60-65 per cent of the value as the loan amount. If it is a BIS916 jewellery, the purity is above 90 per cent and the bank or non-banking financial company may be willing to lend more.
The rates of interest applied on gold loans are much lower compared to personal loans. Different banks and NBFCs have a wide range of interest rates on offer with a maximum tenure of one year. Most banks allow pre-payment of loans without any penalty and does not need a guarantor for gold loan.
With the kind of leeway and leverage this metal provides, this asset will always be endorsed by banks and millions of Indians.
Easy money
Pledging gold is one of the easiest, and fastest, ways to raise money. The interest rates are also cheaper than, say, personal loans