Following Covid19, gold is one of the most preferred options to avail of finance. The reasons for the same are pretty viable. On the one hand, Banks and Non-Banking Financial Institutions are facing liquidity challenges and are thus reluctant to provide personal loans, home loans, and loans against property to the borrowers. Similarly, they have also launched vertical business products for a gold loan to provide hassle-free credit to the borrowers.
How has changing time for the gold loan market increased the demand for gold loans?
One of the recent transformations in the gold loan market is the availability of gold loans for higher values. As per the guidelines issued by the Reserve Bank of India, financial institutions can now lend up to 90% of the value of the gold for non-agricultural loans. This limit has been extended until March 2021. The increase in Loan to Value Ratio for gold loans has brought a positive impact on the borrowers.
Let’s understand this through an example: If a borrower has gold jewelry worth 100 gms, then as against the LTV of 75%, he/she can now get more funds by mortgaging the same value of gold.
Moreover, with a fall in the prices of gold, it is expected that the borrowers would choose not to repay the gold loan amount instead of getting their gold back. It is because with the country’s GDP experiencing negative growth, the socio-economic conditions of India along with the value of the dollar would experience a hit.
A similar thing was observed during the 2008 crisis in the U.S when people preferred to give their house keys to banks as the real estate prices crashed. Thus, the gold loan companies certainly face a lending risk as far as the current scenario of the gold loan market is considered. Nevertheless, the borrowers are on the safer side, and it is one of the preferred choices for availing finance in the present times. Another option you can consider is cash against gold. Gold Loan lends 75% at LTV whereas You can also avail Cash for Gold which would be 99% around the actual value .Getting a gold loan or any other loan is a difficult and long process as compared to Cash for gold which is instant and also gives you the actual value
Understanding more about gold loan markets:
With the availability of gold loans at the doorsteps of the borrowers, the gold loan market for the borrowers cannot be much ideal. Borrowers can now conveniently avail gold loans by sitting in the comfort of their homes. From the process of applying for gold loans, filling application forms, evaluation of gold, to disbursement of funds to your bank accounts, the entire process is now digital.
Along with that, the lower gold loan rates, unlike any other form of loan products, be that a personal loan or a business loan is also another attraction for the borrowers. Thus, the borrowers can blindly trust gold loans to avail funds for managing day to day operations, including reviving their business operations.
Another reason why gold loans are in demand, especially among small businessmen, is that unlike business loans and personal loans, a gold loan has no restriction on the end-use of a gold loan. Thus, the borrowers can avail a gold loan both for fulfilling personal and business requirements. Also, with no requirements for submitting proof of income, a gold loan can be availed in a shorter span of time by providing minimal documents for identity and address proof.
Further, when people have faced layoffs or high cuts in their salary, the gold loan can be an ideal choice. It is because financial institutions do not ask you to have a good credit score or CIBIL to avail a gold loan.
Thus, undoubtedly when people have utilized gold lying in their households and lenders are providing gold loans at attractive gold loan schemes, it is one of the most popular loan products.