- Should you opt for a Gold Loan as gold prices are at an all-time high?
- Consider all the factors such as Higher LTV, Lower Interest Rates, Flexible Repayment methods, etc, to make a better decision.
We Indians own 25,000 Tonnes of Gold, which is roughly one-eighth the metal that has been ever mined. Most of us have this tendency to keep Gold in our households in the form of jewellery or coins. If we were to put it simply, we could consider Gold as the default ‘Personal Savings Bank Account’ for many individuals. Gold assures people of safety in tough times. Or better, in times of extreme uncertainty, gold can be the temporary storage of wealth. The reason behind this fact is that you can sell your gold or even opt for a Gold Loan from the leading lenders to meet your financial requirements.
As you must have been noticing that Gold Prices are at an all-time high by going over INR 50,000 per 10 gram and have been touching new heights every day. Also, many experts believe that this rally in Gold Prices is not going to end anytime soon. So, someone who owns a substantial amount of Gold in the form of Jewellery or Coins and is in need of urgent funds must be having a question in his or her mind – ‘Is this the right time to take a Gold Loan?’
Well, to answer this question, you need to look at a lot of factors. These factors will decide whether opting for a Gold Loan would be the right decision for you or not. We will be telling you about all of those important factors. So, to have more clarity about it, keep reading!
Table of Contents
Look at These Factors and Decide if This is the Right Time to Opt for a Gold Loan
The soaring prices of Gold have encouraged borrowers – who are struggling with salary cuts and job losses – to opt for a Gold Loan in these tough times. Gold Prices have shot up since January and have continued to rise. So, is it the right time to take a Gold Loan? Before making the final decision, there are a few factors that we are shown below. Please check!
Higher LTV Ratio
Before deciding whether to take a Gold Loan or not, it is important to know how a Gold Loan works. Well, lenders provide the loan amount against the overall value of your gold at affordable interest rates. When you go for a loan, the lender assesses the pledged Gold Ornaments or Coins in terms of purity and overall weight. This is known as the Loan to Value (LTV) ratio. So, the higher the overall value of your gold, the higher will be the loan amount. The LTV ratio tends to change from one lender to another. Usually, lenders provide loan amounts from 65% to 90% of the overall gold value.
Gold Prices (per 10 gram) have increased from INR 41,190 on March 1, 2020, to INR 51,170 on July 27, 2020. So, you can see the grand increase of around 24% in just about 5 months. In the current times when the gold prices are soaring high, this automatically indicates that you can get a higher loan amount from lenders. Also, the best thing about a gold loan is that there is no limit on how many times you can pledge your gold to get a loan, which means that a loan can be rolled over for as long as you need according to your need.
So, you can do the calculation and know what would be better – Opt for a higher Gold Loan Amount or let your Gold sit idle at your home when you require urgent money.
Affordable Interest Rates
Before taking a Gold Loan or any other loan, interest rates play a huge role in determining your repayment amount. It directly affects your repayment amount; higher the Gold Loan Interest Rates, higher would be your repayment amount. That’s where Gold Loan comes handy as the interest rates are usually lower as compared to unsecured loans such as a personal loan. If we were to put it on an average basis, Gold Loan Interest rates range from 10% to 16% per annum. Keep this in mind that interest rates also depend on your overall profile and the loan amount.
The other thing that could work in your favor is the recent rate cuts by the Reserve Bank of India because of the ongoing pandemic. These consecutive rate cuts have lowered the lending rates further. There are a few lenders whose Gold Loan Interest rates are linked to the external benchmarking i.e. Repo Rate Linked Lending Rate (RLLR). And due to the lower RLLR, Gold Loan Interest rates have also become affordable.
Lower interest rates would help you in repaying the loan amount without any trouble. Also, it would not put some extra burden on your finances if you are already struggling with the economic slowdown caused by COVID-19. We are showing you interest rates of some of the Gold Loan Lenders so that you can make a better decision on whether this is the right time to take a gold loan or not. Please check the below table.
|Lenders||Interest Rates (In Per Annum)|
|Muthoot Finance||12.00% - 27.00%|
|ICICI Bank||10.00% - 19.76%|
|HDFC Bank||9.50% - 17.55%|
|State Bank of India (SBI)||7.50%|
|Manappuram Finance||12.00% - 29.00%|
|Union Bank of India||7.00% - 9.60%|
|YES BANK||9.00% - 15.00%|
|Kotak Mahindra Bank||10.50% - 17.00%|
Lenient Eligibility Criteria Considering the Current Situation
The repayment capacity of borrowers has taken a huge hit due to the current economic slowdown. Things are coming back to normal but at a slower rate. And in such times, lenders are keeping a close look at the eligibility criteria of individuals while approving the loan amount. People are finding it hard to get their personal loan approval in current times. That’s why there are so many people preferring to opt for a Gold Loan.
You don’t need to meet strict eligibility norms related to credit score, monthly income, employment type, job history, etc. When you opt for a Gold Loan, the only thing that you need is your Gold. Your low credit score or low monthly income may not impact your gold loan approval. Just pledge your gold ornaments to the lender, and after the authentication, the loan amount will be transferred into your account.
There is also one thing that can make you go for a Gold Loan. If you are thinking about taking a Loan Against Shares and Mutual Funds then we would want to tell you that it may not give you the desired loan amount if the investment value has come down due to the COVID-19 pandemic. On the other hand, Gold prices are at an all-time high, so it would help you in getting the higher loan amount with lenient eligibility criteria with minimal documentation. You will only need to provide basic KYC documents and that’s it.
Flexibility in Repayments
In case of any loan you take, you would need to repay the loan within a fixed tenure you choose. The most popular form of repayment across all types of loans is considered to be the Equated Monthly Installments (EMI). A borrower needs to pay a fixed EMI amount every month that consists of a principal amount and interest amount. But the times we are living currently are not normal. It may not be possible for individuals to pay a fixed amount every month due to the financial crunch he or she has been facing due to pandemic.
But when you opt for a Gold Loan, you don’t need to choose the EMI as a default repayment option. Gold Loan lenders provide you much-needed flexibility in the repayment options. Apart from EMI, there are three more options that you can choose from according to your repayment capacity and convenience. This is one of the important things that could be highly beneficial for you when you are thinking to opt for a Gold Loan. We are showing all the Gold Loan repayment options that you can see below.
- EMI Method – Monthly Payment for your Tenure which will consist a part of principal and interest
- Interest Payments at Regular Intervals – Pay the Interest amount at regular intervals – Monthly/ Quarterly/ Semi-yearly/ Yearly and pay the principal amount at the end of tenure
- Upfront Interest Payments – Pay the total interest payment at the start and principal amount at the end of the tenure
- Bullet Repayment – Pay nothing during the tenure. Instead, pay both principal and interest amount at the end of tenure
Apply for a Gold Loan Digitally
The Government has been constantly advising us to not go out of our homes unnecessarily as part of its efforts to contain the spread of COVID-19. In such situations, you must be thinking if you would need to go out to apply for a Gold Loan. Well, difficult situations require strong measures. If you want to apply for a Gold Loan, you don’t need to put even one step outside your home. Several lenders provide the option to apply for a Gold Loan digitally either via their official websites or popular Gold Loan apps.
The digital option helps you in comparing all the available options and their features (interest rates, loan amount, tenure, etc) and then deciding the perfect choice for you. Once you make up your mind, you can apply online. You only need a Laptop/Mobile and Internet Connection. By filling a few details, you can submit your application. The representatives from the respective lender will visit your doorstep for the evaluation and authentication of your Gold. Once everything is done, the lender will disburse your gold loan amount into your account instantly. While availing the door-step evaluation, you must ensure the credentials of the respective lender so that you don’t face any fraud later.
Considering the ease the ‘Digital Apply’ option provides, a Gold Loan could be a suitable option for you in the current times when most of the things have taken a long halt.
The Bottom Line
A gold loan will ensure that you will have the possession of your jewellery and once you repay the loan, lenders will return them to you in their original form. Due to the growing gold loan borrowers, lenders are competing pretty hard to give better offers. You could be the one to get benefits from their healthy battle. Also, after seeing all the factors mentioned above, you must be in a better position to decide whether this is the right time to take a Gold Loan or not. Read them again and choose wisely!