Traditional Indian families have a particular preference for buying gold as an investment. It is evident from the fact that Indian households hold about 24,000 tones of gold. Therefore, they are likely to pledge it as collateral while availing loans. According to a report by KPMG the gold loan market in India has grown by 11.8% in 2017-2018, and the growth rate is estimated to increase further in the upcoming years. This growth of the popularity of gold loans is not because of one, but many factors:
Fairly simple eligibility criteria
When you apply for a gold loan, you do not have to worry about the long list of eligibility criteria that you need to qualify in other collateral-free loans, thereby, making the application procedure relatively straightforward. So, there is no need for having a high CIBIL score to be eligible for the loan. In case of a gold loan, only KYC documents are required and not your payslips as in the case of Personal Loan. Also, if you have already taken a loan, not wholly paid, you can still receive your gold loan without facing any problems due to previous loans.
Simple and fast procedure
The disbursement of Gold Loan is much quicker as compared to most of the other loans. It might take you just a few hours to get a loan against your gold. Gold loan is a secured loan, i.e., your gold acts as your collateral. So, there is no need for the bank to verify your financial background. It saves a lot of time and effort for both parties. Thus, the bank checks the worth of your ornaments and accordingly, your loan gets disbursed.
Lower Interest rates
The interest rates or gold loan per gram rate are usually less than that of other loans. It is primarily because banks are more comfortable in giving out a loan with security. In case the applicant fails to pay his loan, the bank can quickly get the money back from selling that gold. So, the safer the loan is for the bank, the better terms are provided to the applicant.
Higher Loan Amount
If a middle- class person who has been in a job for a long time needs a loan, he will probably get a personal loan according to his salary. Thus, his average salary comes in the way of getting funds for his immediate needs. By taking a gold loan against the gold ornaments that are usually bought by people as jewellery for special occasions or as a gift people receive at their weddings, a middle-class person might be able to avail of the loan amount that he needs. Also, while most personal loans have an upper limit for amount, the gold loan does not have a limit.
Thus, a gold loan is a good and easy option for any middle-class person who may need funds for any immediate purpose. The idea of taking gold out of your lockers and using the ornaments for your urgent needs has proved helpful for many and might prove to be the right choice for you as well.