Latest Trends In Gold Loans

Since COVID-19, one of the biggest financial crises of the decade, financial institutions faced challenges in moving funds. Moreover, halted salaries and growing medical bills forced people to apply for loans. As a result, many banks had to stop granting unsecured loans.

The saviour in this situation was gold. The yellow metal helped many businesses and people that were swimming in financial woes. Lenders were supporting secured loans because gold loans were improving their reserves. Thus, the pandemic was a wake-up call for many to set up an emergency corpus. Most people concluded that gold is the best resource to cultivate and an ideal reserve fund.

The market for gold loans has changed. This article discusses the latest trends in gold loans.

Trends Influencing Gold Loan Investments

Gold loans are ideal for those looking for immediate cash. After the pandemic, the noticeable trends were as follows.

• MSMEs And Consumers’ Increased Attention

The pandemic has underlined the lack of an emergency fund. Small businesses and consumers realised that it was imperative to develop the emergency corpus. The need and realisation spiked the demand for gold loans. The thought behind taking the gold loan is to use the investment to support the business.

Another essential reason behind the spike in demand for gold loans is the gradual increase of start-ups. Gold loans were a perfect choice when start-ups failed to garner funding through VCs. Even for expansions, gold loans have aided many firms over the period.

• Secured By Collateral

Banks or Non-Banking Financial Institutions (NBFIs) are less reluctant to sanction a secured loan. If the gold loan turns into a Non-Performing Asset (NPA), they can sell the collateral and quickly recover the loan amount. However, unsecured loans have hefty paperwork and chances of suffering losses.

• Lower Interest Rates

Gold loan interest rates are lower than unsecured loans. The average interest rate on gold loans is between 7 and 10%. People often lean towards economical solutions when it comes to lending money. With gold as collateral, the gold loan interest rates decrease. The percentage of interest may differ from bank to bank.

• Leveraging Rising Gold Prices

The price of gold was approximately Rs. 30,000 in 2012; today, it is Rs. 52,000. Thus, you would receive a larger loan than your investment if you bought gold in 2012 and used it as collateral today.

For instance, in 2012, you spent Rs. 30,000 on 10 grams of gold. You want to take a gold loan to save the company from the pandemic. The bank will give you 90% of its worth in exchange for the gold. The gold was currently selling for Rs. 52,000. As a result, you received a loan amounting to Rs. 42,800.

• Gold Loan Market Tapping New Markets

Since 2019, the gold loan market has improved drastically. People realised it was economical and easy to get a gold loan. The marketers believe gold loans will see colossal traction in the coming years owing to increasing start-ups and the rising price of gold. They have also suggested that the increase in gold loans could pressure unsecured loans to revise their interest rate.

• Improved Participation Of NBFCs

Non-Banking Financial Corporations (NBFCs) are financial institutions that provide gold loans, among other financial services. As compared to banks, NBFCs approve gold loans quickly. They also provide competitive interest rates to attract more borrowers. As a result, banks and NBFCs continuously provide better experiences to people interested in taking gold loans.

The gold collected as collateral is used further as a reserve or emergency corpus. If the collateral becomes a non-performing asset, they utilise the gold for business purposes.

The developments in the gold loan sector have improved the market. People are now aware of the factors and risks involved in taking a gold loan. As a result, there has been a significant shift from people preferring gold loans to unsecured loans.

Apply For A Gold Loan With IIFL Finance

The latest trends in gold loans must have changed your perspective toward gold loans. Moreover, the multiple advantages the banks and NBFCs have to promote gold loans are impressive.

For all your needs regarding gold loans, you can rely on IIFL Finance. You can apply for gold loans online or at the nearest IIFL Finance location to examine the rates. Simply walk into one of our branches in India or apply online and receive loan approval in less than 30 minutes.

FAQs

Q1. Why are gold loans more popular?
Ans. A gold loan has a cheaper interest rate than most other loans since it is a secured loan. The lender will take on considerably less credit risk when extending the loan because you will be handing over your gold. Thus, interest rates are now low.

Q2. How is the gold loan determined?
Ans. By deducting the principal loan amount from the total amount owed, you may calculate the interest rate on a gold loan. Use a gold loan interest rate calculator to find out more and understand how the interest rate affects EMIs and the total amount owed.