The biggest risk of lending the money is the non-payment of the funds. The lender will have to suffer the loss and this is why unsecured loans are generally provided at higher rates of interest. The lenders want it to be the second option. On the other hand, when gold is pledged as the collateral, there is no risk of suffering the loss. In case the borrower fails to pay back the loan, the lenders can sell the gold to recover the funds. Hence, the rates of interest are lower for gold loans.
With the decrease in the household income due to the loss of jobs and cut in salary due to the COVID-19 pandemic, more and more people are lining up to take gold loans against their gold ornaments. Personal loans or credit cards are very expensive and can put you under more stress, while gold loans are easily available and comparatively less expensive.
What is now making gold attractive is the rise in their prices, that is gold loans have turned cheaper, which also means that you can get a higher loan amount for your gold ornaments. According to the RBI, the LTV has increased from 75% to 85% of the pledged gold value, and also with the rise in the prices of gold, borrowers can now borrow more amount of gold loans against their already pledged gold ornaments.
It is easy to get a gold loan with less processing fees and also there is no need for any credit score or credit history. You can walk in with your gold jewelry and walk out with cash in your hand in less than an hour. Also, the process doesn’t require any extensive paperwork, unlike the process which is involved in getting personal loans. The higher the purity of your gold ornaments, the higher will be the rates of the gold loan per gram. ICICI Gold loans are one of the top gold loan schemes in the market. You can get a gold loan without any hassle with minimal documentation.
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