Demand For Gold Loan Spikes

There were a few reasons that led to this sudden increase in the demand for Gold Loan, Let's discuss them below :

Job Losses:

During the pandemic, countless employees were fired from jobs, and even more suffered salary cuts. This led to a major financial crunch in a lot of homes. Especially those homes where there was only one breadwinner and a lot of dependents.

Funding for businesses:

As much as 1,00,000. Small businesses had to shut down because of no funds. Many such small business owners turned to Gold loans to fund this money requirement. 

Spike in Gold Loan prices:

During a crisis, everyone is skeptical about the economy coming back on track. This makes everyone avoid risk and turn towards safe investment. This is why people turn to Gold because Gold is considered a safe investment. It is because it is present in limited quantities, and the money's value is tied to Old. Its value can never turn to zero.

New business establishments:

Moreover, more than 3,75,000 new small businesses were established in the lockdown. The funding to new businesses mostly comes from loans, and due to the availability of Gold in almost every home, Most people took Gold Loans to fund these

Lower Interest Rates:

The lowest interest rate you will find in any loan product is in Gold Loans. The gold loan rate is as low as 9 percent per annum. They give you the flexibility of end-users like personal loans and then charge the lowest interest rate. 

No Processing fees:

The processing fees are the lowest in the case of Gold Loans. It's as low as one percent. Moreover, the processing is so fast these days that the loan amount is transferred as early as an hour.

No foreclosure fees:

Foreclosure means paying back the whole outstanding amount before maturity. A lot of other loan products have these charges but in the case of Gold Loans, there are no such charges.

No income proof requirement:

One of the best things about gold loans is that you don't need any income to avail yourself of a good old loan. You may be a high-earning private employee or a homemaker, you can avail of gold loans. There is no occupational bar to the borrower of a Gold loan. Gold loan's popularity has risen tremendously due to the haven appeal it has and especially the dwindling economy due to lockdown. The above-mentioned reasons were a big kick to the increased demand for gold loans.

Gold loans are also so popular here because due to the religious and cultural significance Gold in India is present in every house. This makes people turn to Gold when they face a financial crunch. Before you go to apply for any loan, you need to check out which fits your needs the best. Check SBI Gold Loan Per Gram and other banks before you apply for any Loan.

There is one more very crucial thing to consider and that is the LTV ratio. LTV stands for Loan to Value. It refers to that portion of your gold's worth that you will get a loan. Banks usually have an ATV ratio more than Non-banking financial corporations. But here a thing to note is the non-banking financial corporations or NBFCs charge higher interest than the banks. This is because by giving more value to your gold as a loan they are taking higher risk than the banks. 

Conclusion:

Due to the reasons mentioned above, the Gold loan demand has drastically increased, but this is not bad news. The bad news would be if you choose a Gold loan without having proper knowledge regarding it and without doing a proper comparison.

Gold Loan For Women

India is the second-largest consumer of gold in the world due to its culture which places a lot of emphasis on gold coins, gold bars, gold jewellery & ornaments, etc. Needless to say, women are amongst the biggest consumers of gold. A gold loan is a quickest and simplest way to turn your gold into cash in a short span of time. Gold loan is hence ideal for a situation when money is required urgently for emergencies, business purposes or any contingent expenses. 

For obtaining a gold loan, one does not require a credit score or any income proof which many Indian women do not have. The only requisite documents required for obtaining a gold loan are an Aadhaar card, PAN Card, Voter ID Card (or simply KYC documents) and address proof. As soon as the gold is given for evaluation to the bank, the loan amount is determined along with interest rates. The lowest interest rates are offered by public sector banks while the highest interest rates are offered by Non-Banking Finance Companies (NBFCs). Ideally, a bank will only provide gold loans for a maximum loan to value ratio of 75% of the current market price of the gold. 

Mostly, gold loans are offered only for a period of one year. However, many banks extend this tenure, whereas a few banks like Manappuram Gold Loan allows you a tenure of three years or more. Nonetheless, the tenure depends on the repayment option and the type of loan scheme preferred by the borrower.

In a gold loan, the repayment option is very flexible. The borrower can pay the amount as a lump sum on maturity or can re-extend the tenure by re-pledging the gold at the current Loan To Value (LTV) Ratio. Some banks and NBFCs also allow early repayment and partial payments for those who can pay, without any penalties. The flexibility to repay loans and interest is another added benefit. There is also no limit on how many times the same gold can be re-pledged for a new loan. As a result, the borrower has the opportunity to use the same gold to obtain new loans as many times as possible. Hence in this way, a gold loan also acts as an overdraft against the pledged gold. All of this is beneficial for women since the burden of monthly payment of instalments is avoided. This helps in avoiding short-term money problems or crunches, especially in a business.

However, the value of the gold given as collateral is subject to a lot of charges as well as changes. In case the gold prices fall, the bank may ask for more gold in lieu of the gold loan provided. If the borrower/defaulter is unable to repay or provide more gold as collateral, the bank has the option to charge a penalty or to sell off the collateral gold in form of payments.

The maximum Loan to Gold Value on the lowest interest rates is currently offered under the AtmaNirbhar Mahila Gold Loan scheme of the Bank. This scheme was recently launched by Vidya Balan in order to make women of India more reliant. It aims to help those women of India who currently rely on local money lenders for their financial needs. Such money lenders often offer a very high interest rate along with a comparatively low Loan to Gold value to exploit women. 

Hence, a gold loan rate is one of the most suitable and favourable ways for women to take loans against their gold ornaments or gold jewellery due to convenient payout options, low risks involved and easy convertibility into loans. However, one must always assess the risks involved and weigh them with the opportunity costs before making a decision.