Gold is considered an excellent hedge when market conditions are volatile, loan interest rates are high, and inflation is high. All three conditions are currently met, making gold a sought-after investment option. The recent rise in gold prices has further increased the value of the yellow metal. Not only does it offer gold returns, but it also helps you get good home equity. In a high-yield regime where all banks offer loans at a high price, gold loan rates are even cheaper.
Many large gold loan providers in India now offer reduced interest rates as well as additional benefits. Now we can benefit from a loan of up to Rs 1 crore against gold. They also offer loans ranging from Rs 1,305 to Rs 2,025 per gram of gold.
Obviously, the interest rates offered by gold loans are much cheaper than a personal loan. Compare the interest rates on a personal loan with a gold loan.
Choosing a gold loan over a personal loan is fast becoming the norm for urban and rural India. In fact, the social stigma associated with gold credits has almost diminished, and they are widely recognized as an acceptable means of raising funds to meet urgent cash needs.
Providing collateral in the form of gold, real estate, and even stocks/bonds helps reduce interest rates. In the event of default, if the borrower does not repay the loan on time, the lender can garnish the provided collateral. Otherwise, an unsecured personal loan is associated with a high-interest rate because the borrower does not provide the lender with any collateral.
Unlike a personal loan in which the bank offers a fixed rate, the interest rates of gold loans depend largely on the margin of safety that it leaves the lender. In other words, if you promise more jewelry for the same loan amount, the interest rates will be significantly lower. Depending on the net weight and purity of the gold, the interest rates vary between 10 and 17%.
Each bank has its own method of calculating the value of the jewelry committed. Some banks set the counterparty price at a level (for example, Rs 1,000 to Rs 1,200 per gram) for a period of 6 months and only change it after one year, regardless of market value. While others need an average market value of two weeks, then the value of the jewel is determined. Some observe the daily development of the price of gold in international value and offer a loan.
The best thing about a gold loan and other secured loans is that regardless of your credit rating, you can qualify for a loan by offering a third-party guarantee, which may include your parents, spouse, siblings, and even your friends.
Another advantage of a gold loan is that it is the easiest and fastest option available. Without much paperwork, you can easily take out a loan in a few minutes. The only document required for a gold loan is proof of personal identity. No other documents are required.
In a medical emergency where immediate payment is required, the loan can be paid quickly and easily. More and more people are opting for such loans, with a term of no more than one or two years, to finance their children’s education, buy a car, or even pay a down payment for the purchase of a home.
The loan repayment can be structured between the amount of interest and the amount of principal. Thanks to this, the principal can be paid as a lump sum at the end of the loan period and the interest amount can be paid at regular intervals in the form of EMI.
For example, if you got a 12% gold loan for 2 lakh rupees for 2 years, you would have to pay 2,000 rupees per month for 2 years. In addition to paying these $ 2,000 a month, you must pay the principal value of Rs 2 lakhs after 2 years. Whereas the IME for a personal loan of Rs 2 Lakhs for 2 years would be Rs 9,400 at an interest rate of Rs 12% and there is no option to pay a lump sum mandate at the end of your period.
There are a few tips to keep in mind before choosing a particular bank or NBFC for a gold loan.