How Gold Loans Became Popular?

People worldwide consider gold a symbol of luxury, richness, and power. These factors have made gold a lucrative resource for the lending domain. Financial institutions help customers satisfy their monetary requirements by offering low-interest gold loans. This lending arrangement offers quick liquidity at convenient repayment terms and flexible eligibility norms.

But what makes them so popular? Here’s everything to know about gold loans and the unique features that make them a perfect lending tool for people.

What Are Gold Loans?

Gold loans are lending products wherein you must pledge your gold assets, such as jewellery, bars, and gold items, with financial institutions. Per the RBI guidelines, banks and NBFCs can issue upto 75%  of the total worth of the pledged gold as the loan amount. Lenders weigh your gold, test its purity and then calculate its price based on the prevailing market rate.

Gold loans are secured loan products. Thus, lenders' eligibility norms and verification procedures are more straightforward than those in unsecured loans. Furthermore, with gold assets pledged as collateral, the risk element for the lenders is low. Thus, lenders willingly offer gold loans at lower interest rates, flexible EMI options, and manageable repayment tenures.

Salient Features Of Gold Loans

• Customer-Friendly Eligibility Norms

You don’t need an impressive credit score to secure a gold loan. Due to the low risk involved, financial lenders do not give much importance to credit scores when issuing gold loans. Instead, they rely on gold’s weight, current market value, and purity.

• No Fixed Purpose

Unlike business loans with a defined purpose, the scope of gold loans is infinite. You can use your gold loan for various personal objectives such as medical expenses, family trips, weddings, etc. You can also use them for professional purposes like maintaining working capital, office construction, and additional staff recruitment.

• Assured Security

You do not lose your precious assets when you pledge them as collateral for securing gold loans. Financial lenders hold your gold items until you repay the loan amount (interest and principal). On repayment, the lenders return your assets without imposing new terms and conditions.
The collateralised assets remain in bank lockers with advanced security systems during the loan tenure to ensure high-end safety measures. However, the bank can sell or auction your pledged assets and recoup funds if you fail to pay the loan amount.

Influential Reasons For Gold Loan Popularity

• One of the main reasons for the surge in the popularity of gold loans is improved financial literacy. Banks and NBFCs have launched several programs to communicate with people, bringing them under the pursuit of a regulated banking cluster. With increased financial literacy, people switch from unregulated lending to regulated debt financing, such as gold loans.

• Low-interest loans and convenient eligibility norms make gold loans a popular choice. You can get a gold loan from any trusted lender with no credit history or a poor CIBIL score. Moreover, the lenders do not rely on your income flow or financial background before sanctioning your gold loan.

• Today, the market offers a variety of gold loan providers, including public banks, NBFCs, private lenders, and online lenders. These entities propose low-interest gold loans with minimal paperwork and easy repayment schemes.

Conclusion

For ages, gold has been a significant player in the lending market and continues to shine as the fastest-growing financial segment in the economic realm. Moreover, these secured debts come with competitive interest rates and customer-friendly repayment norms. So, when stuck in a financial problem, you can take gold loans from trusted lenders and manage the situation without affecting your budget plan.

FAQs

Q1. How do lenders value gold’s worth for gold loans?
Ans. Financial lenders test the purity and weight of your gold assets before deciding their worth. Gold jewellery with a mix of silver and gems will have less value than gold bars made with pure gold.

Q2. When do banks sell pledged assets in the case of gold loans?
Ans. Gold loan providers sell off your assets when your loan account becomes a Non-Performing Asset. Consecutive failure for three months (90 days) to repay the interest makes a loan amount categorised as an NPA by the lender. The lender must inform the customer about the NPA and the collateralised gold auctioning.