How Safe Are Gold Loans in 2021?

You may be able to ignore the gold ornaments at home, but you can’t ignore the hue and cry over gold loans these days. This is partly due to soaring prices, and partly due to increased consumerism, along with evolving social norms. Gold loans are seeing not just unprecedented rise right now, but are stated to increase in popularity in the future as well.

Is the Gold Loan Market Growing?

Think about this: The organized gold loan market in India was worth 25,000 crore in FY 2009. It grew at a compound rate of 38% between FY 2002 and 2009. Today, it is expected to grow at a compound rate of 40%. It is stated to reach a market value of 50,000 crore. According to a study by the ICRA Management Consulting Services, a study shows the alarming situation of pawn brokers. Big players like NBFCs, new Fintech companies and others are coming into the market, making the work of small players very difficult. However, there are other reasons as well.

Firstly, it is all about convenience. Sometimes, when customers pledge their gold for loans, it is because of desperation due to some situation. However, it is still are step more convenient than other personal loans. One can get gold loans today faster.

Secondly, gold loans are known for being offered with a low interest rate. While it is currently increasing certainly due to increasing demand, it is still less than unsecured personal loans. Gold loan interest rates are from 10% to 24% per year while other personal loans have interest rates of 16% to 26%. Remember that interest rate depends on your credit profile.

After all this, we’d like to say that it is far better to take a gold loan than a personal loan because of lower interest rates. Gold loans are secured loans. An additional reason to take this is that most NBFCs and banks will allow you to pay interest on a monthly basis, while the principal can be paid at the end of the loan period. From the perspective of interest, this arrangement works much better.

At the same time, you can determine the amount of loan based on the market value of your gold items. This means you do not need to show any income proof, unlike personal loans in which the loan is determined after the scrutiny of your income. You’ll need a lot of income proof to get a personal loan. Not so in case of gold loans, since income is not so important here. What is important is that you submit your gold with the bank. That is all that’s needed. And then, you pay back the loan to redeem your gold. Banks like HDFC and ICICI may ask for your personal details such as ID, and this verification process takes an hour. Others like Manappuram and Muthoot sanction your gold loan in a few minutes.

Is it Better to Get a Gold Loan Now?

Instead of hoarding your gold at home in a locker, why not put it to good use? You don’t have to wait for an emergency to use them either. Have a business to finance, or an education to fund? Want to go for a dream vacation? Your gold can be used for anything. After all, these are personal loans. Financial institutions give you up to 70% to 80% of the value of your gold. 

Unlike the past, pledging your gold is not longer seen as taboo. That is why right now, gold is seen as a convenient and legitimate way of meeting any emergency, or to get quick funds for anything. Right now, gold loans are taken by people from all walks of life seeking to meet urgent situations, or for bettering their lot. Others choose this because gold loans are easier to get than other types of personal loans. Right now, gold prices are soaring, and banks themselves are pushing customers towards gold loans.

That being said, you should not take a gold loan wantonly without thinking. After all, a loss of gold is still a serious and irredeemable loss. It’ll look bad if you lose your family heirloom, right? If you fail to pay the loan back on time, banks can charge a higher interest, and auction off your gold. Thus, before taking such a credit, you should still weigh the pros and cons. There are risks, and you should be aware of them.