Gold holds a significant place in Indian households, with approximately 27,000 tons of the precious metal being held privately, making it the largest private gold reserve globally. Despite the immense potential for utilising gold as an investment, a considerable portion of Indians tend to keep their gold locked away due to sentimental value. However, the landscape is changing post-liberalisation, with a growing number of financial companies offering gold loans. In this comprehensive guide, we will delve into the intricacies of gold loans, their benefits, and why they are gaining prominence in India.
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Understanding gold loans
A gold loan provides a straightforward solution for individuals looking to borrow money by pledging their gold as collateral. The loan amount is determined based on the gold loan per gram against the total gold pledged. This pragmatic approach serves various personal and business needs, including medical emergencies, education expenses, weddings, business expansion, and other urgent financial requirements.
Benefits of taking gold loans
- Quick approval and processing
- Advances in technology have streamlined the gold loan application Many companies now allow individuals to apply for gold loans online, providing quick estimates of mortgage amounts and EMIs.
- Physical presence is still required for pledging gold, ensuring a secure and transparent transaction.
- Lower interest rates and fees
- Gold loans typically offer lower interest rates directly tied to the loan tenure and mortgage amount.
- Processing fees are minimal or often non-existent.
- Unlike traditional loans, a good credit score is not a prerequisite, reducing the chances of loan rejection.
- Gold security
- Pledging gold is a safer option than keeping it at home. Most reputable gold loan companies have secure vaults to store pledged gold securely.
- Flexible repayment options
- Gold loan borrowers enjoy multiple repayment options, including monthly instalments or the choice to pay only the interest while deferring the principal repayment until the loan closure.
- Quick transfer and loan renewal
- Shriram facilitates direct transfer of loan amounts to borrowers' bank accounts.
- Loan renewal options provide added flexibility at the end of the loan tenure.
Shriram Finance: A trusted name in gold loans
Established in 1986, Shriram Finance has emerged as a prominent player in the retail financing space. With a seamless online process for pledged ornament loans, the company has expanded its reach, allowing individuals to apply online and receive prompt assistance from the nearest branch.
Shriram offers gold loans up to 75% of the gold’s value at attractive interest rates starting at 10%*p.a. With minimal paperwork and quick disbursal of funds, borrowers can avail of funds promptly, and hassle-free. While Shriram also offers personal and business loans, gold loans have certain advantages when it comes to raising funds.
Advantages of gold loans over personal and business loans
When considering financial options, gold loans stand out with distinct advantages over both personal loans and business loans.
- Minimal pre-payment charges
- Gold loans do not burden borrowers with exorbitant pre-payment charges, allowing flexibility in repaying the loan ahead of schedule with minimal cost, a benefit shared by individuals and businesses.
- Lower interest rates
- Whether for personal or business needs, gold loans generally offer lower interest rates compared to both personal and business loans, making them a cost-effective borrowing option.
- Quick disbursement
- Gold loans provide swift processing and disbursement, ensuring borrowers can promptly address their financial needs, be it personal or business-related. This is possible as the lender does not have to worry about the credit history and repayment capability of the borrower.
- Collateral dependency
- The primary determinant for gold loans is the value of the pledged gold, minimising the impact of income variations or credit scores. This accessibility is beneficial for individuals and businesses with diverse financial profiles.
- Transparent recovery process
- Unlike personal and business loans, gold loans feature a transparent recovery process in case of non-payment. Financial companies may auction the pledged gold, avoiding recovery tactics seen in other loan types.
- Flexible repayment structure
- Gold loans offer a flexible repayment structure, allowing borrowers to pay only the interest during the loan tenure. The principal repayment can be deferred until the borrower decides to close the loan, applicable to both personal and business borrowers.
- Simplicity in documentation
- Obtaining a gold loan involves simpler documentation compared to the often intricate paperwork required for personal and business loans. This simplicity expedites the approval process for individuals and businesses alike.
- Collateral security
- Pledging gold as collateral provides a secure option for both individuals and businesses. The pledged gold is held in secure vaults, reducing risks for borrowers and lenders alike.
- Flexible usage of funds
- Gold loans offer flexibility in fund usage, allowing businesses to allocate the funds for various purposes, such as working capital, expansion, or immediate financial needs.
- Independent of business performance
- Gold loans are based on the value of the pledged gold, making them a viable option for businesses irrespective of their current financial performance.
- No business track record required
- New or small businesses without an established financial track record can access funds through gold loans without the stringent requirements often associated with business loans.
Did you know? Defaulting on a gold loan has minimal impact on the borrower's credit score compared to defaulting on a business loan, a crucial consideration for businesses aiming to maintain a positive credit history. |
Embracing change: Monetising gold for financial well-being
Gold in India is not just a prized possession; it's often considered a status symbol. The emotional value attached to gold has led many families to keep it locked away, limiting its potential to contribute to their financial well-being. Monetising gold through loans offers a practical solution to meet immediate capital needs.
Dispelling stigmas associated with pledging gold
While some individuals still view pledging gold as a sign of financial turmoil, it's crucial to move beyond archaic beliefs. Pledging gold can be a strategic financial decision, especially when faced with urgent financial requirements. It's time to dispel the stigma associated with gold loans and make optimal use of our assets.
Empowering borrowers with information
Armed with information about the benefits of gold loans, individuals can confidently approach gold loan companies. However, caution is advisable, and potential borrowers should thoroughly examine the schemes offered by different companies. Factors such as interest rates, loan tenure, loan-to-value ratio (LTV), and security measures should be carefully considered. LTV, in particular, plays a critical role in determining the loan amount against the pledged gold, typically ranging around 75%* of the gold's value.
Conclusion
As we navigate the modern financial landscape, it's essential to recognise the potential of our assets in contributing to our financial well-being. While gold holds immense sentimental value, unlocking its monetary potential through gold loans can address immediate capital needs. Companies like Shriram Finance provide a reliable platform for individuals to leverage their gold assets responsibly.
In the journey towards financial empowerment, it's time to break free from outdated beliefs and embrace the practicality of gold loans. By making informed decisions and choosing reputable lenders, individuals can ensure that their gold works for them in times of financial need. So, whether it's for medical emergencies, education, weddings, business expansion, or other urgent financial requirements, gold loans offer a secure and efficient avenue for turning our prized possessions into valuable financial resources.
