What Does Gold Loan Mean To People from Different Economic Backgrounds

In today’s uncertain times, between the vagaries of nature and the vagaries of the global and national economy, it is not uncommon to find oneself in a crisis situation with urgent need of money. During times like this, a gold loan is one of the options by which you can raise quick finance with relative ease. This blog looks at what a gold loan in India means for people of different economic backgrounds. But before that, let us briefly understand what is a gold loan as referred to in this blog.

A gold loan is a loan given by a registered bank or NBFC against gold deposited as a collateral. The gold may be in the form of jewellery. Some lenders also offer loans against digital gold.

No matter what the economic background, a gold loan can be obtained relatively easily as the processing is simple and fast. There is hardly any paperwork. Many lenders such as IIFL Finance, also allow you to apply for a gold loan online. Thus, for those who are digitally educated, applying for a gold loan is an extremely easy process. Once they look up the gold loan details, they can apply from the comfort of their home, or even while traveling to work!

Another factor that makes gold loans in India more appealing than other kinds of unsecured loans to people from every income background is the fact that interest rates on gold loans are comparatively lower than the interest rates on personal loans. This is because a loan against gold is a secured loan.

Gold Loan For Lower Income Households:

People from lower income households are far more vulnerable than people from middle-income and high-income households. They are likely to face emergency situations needing external cash support far more often than others. The majority of people of lower income categories are from the informal labour sector where there is no job security or social safety nets to fall back on in case of emergency. Many are dependent on agriculture or daily wage labour for their sustenance. Thus, natural calamities like floods, droughts and earthquakes affect them far more than people from middle or high-income households. In case of economic downturns, they are the first to lose their jobs.

Gold Loans from banks or NBFCs can thus be a huge benefit for people from lower income households. However, as the majority of persons from lower-income backgrounds rarely have credit cards or approach registered lenders for loans, it is likely that many of them will not have a record with credit rating agencies. This may work against their favour as the interest rate charged for those with no credit score is usually higher than those with good credit scores.

Suggested Reading: Credit Score Report used by Lenders in India

Gold Loans For Middle-Income Households:

Gold loans are a convenient method of raising cash during an emergency for the average middle-income household in India. Most of the persons of this category are digitally savvy, use credit cards and have a credit record at the credit rating bureaus. While most individuals from middle-income households do hold regular jobs, there are several occasions, such as medical emergencies, admission and tuition fees of children etc. when one is in need of urgent and quick finance.

Gold Loans For High-Income Households:

For high income households, gold is an extremely convenient way of raising finance as the average high-income household has substantial assets in the form of jewellery and gold investments. The relatively low interest rates and ease of application and processing also works in their favour.

Suggested Reading: Basic Questions You Must Ask Before Availing Gold Loan

To conclude, gold loans from registered banks and NBFCs are one of the options available to individuals from all income backgrounds who need to raise quick finance. However, while taking a loan, you must keep in mind that the terms and conditions of repayment of some lenders are such that the amount owed by you will fluctuate as per the prevailing price of gold in the market. You must therefore carefully evaluate your ability to pay the loan back as per the schedule in the loan agreement, keeping a buffer for fluctuations in repayment amounts. Most importantly, do keep in mind that failure to repay the loan on time may result in your forfeiting the deposited gold altogether.