Gold Loans Take The Lead When It Comes To Securing Personal Finance

When it comes to holding onto their assets, Indians have been known to be the most astute and tenacious of the lot. However, there is also a lot of emotion involved and they can be quite selective in their trade.

In the case of gold, Indians have been traditionally using it to raise funds through informal channels. However, as the organized lending segment has been on the growth path in recent years, gold loans have emerged as a preferred avenue when it comes to securing personal finance. The value of gold has been rising steadily in the past decade. In-fact, in the last year alone, prices have skyrocketed. Consequently, people who were opting for personal loans in the past, have begun to leverage the gold that would usually be lying around in bank lockers to unlock funding at a cheaper cost.

In most cases, a gold loan is issued against jewellery by banks and non-banking financial institutions. Usually about 80% of the total valuation can be doled out. Proper Documentation is a must, for swift processing of the loan application. Among the credentials that may be asked to be furnished, Government approved photo and address proof and the PAN Number are a given. In addition to these, one may also be asked for proof of ownership on occasion.

If you are contemplating keeping your personal jewellery with a lender then you must be aware of the following:

• Gold Loans fall under the secured loan category, since the collateral (gold) is held in possession by the lender till all outstanding dues have been repaid. 
• The loan value is directly proportional to the value of the gold being deposited. The repayment capacity of the individual is not given much weightage since the asset is held in direct possession with the lender and can be sold, if need be, should there be a default. 
• Repayment tenures are short, with most loans being restricted to a year in duration.
• Interest rates are usually lower in the case of gold loans. This is in comparison against a dedicated personal loan. 
• The only risk involved for the lender is where the value of gold may drop below the amount lent to the individual, but in present day circumstances, this risk is only for theoretical purposes.
  

5 Reasons for Gold Loans being such a hit in India:

1. Negligible documentation and quick processing time
2. High rate of repayment due to emotional attachment to personal jewellery
3. Lower interest rates in comparison to personal loans
4. Allows for the leveraging of latent assets, that would otherwise be sitting in bank-lockers attracting storage charges
5. Part-payment facility available, where-in lenders require only the interest component to be serviced with immediate effect, while the principal amount becomes payable upon maturity.

So the next time you are looking for ways to raise funds do make a sweep-check of your bank locker. Chances are, you really won’t need to go beyond that option again!