Gold or yellow metal is a highly liquid asset. It helps one to get the required funds in no time. Gold loans are used to meet the financial requirement for travel, wedding, education, renovating the home and other purposes. As the gold loan is a collateral loan and is secured against gold, the lenders are least concerned about the creditworthiness of an individual and offer loans quickly based on gold. Thus, it becomes one of the quickest and most comfortable instruments to monetize and get money. Higher the Gold Value Today higher will the returns in the future.
As someone rightly said, the time to invest in a particular instrument is as important as the selection of the instrument itself. Let us analyze is it the right time to take the gold loans.
Is it the right time to take the loans against gold
The sparkling metal witnessed an increase of 25% in the previous year, the rise of 1/4th of its original cost is a huge leap. Analysts all around the world are further expecting an increase in the gold prices amid the COVID -19. They believe if the coronavirus pandemic remained for more than six months, then it will lead to a substantial increase in the gold loan prices.
The trade war was one of the reasons behind the gold prices surge and if the recent situation didn’t control ( we hope it does) then the gold prices are expected to grow manifolds. People all over the world may find it better to hedge their funds against gold and thus an increase in gold prices. However, jump in prices of any asset should not be the sole reason to avail of the loan.
If someone is looking to take a loan against gold, then higher prices will benefit the borrower as the loan amount received would be higher but the total cost of borrowing will also increase since the interest paid on gold loans will be high. Further, it is believed to borrow money on one’s gold as a last resort, notably when the asset pledged is in the form of jewelry.
The individual decision of taking gold loan should be based on the significant factors impacting the gold loan, they are:
- Interest rates
Interest rates are the rate of interest at which the credit is provided to an individual. It may vary for banks to banks in the range from 1% to 3%. The one-digit change will impact the interest amount to be paid in a significant way. Individuals should compare interest rates of all the banks and should decide whether it is the right decision to take a loan.
- Tenure of gold loan
The mandate of the gold loan also differs from bank to bank, and some banks have a maximum tenure of 12 months while for others it extends up to 36 months. Individuals must also decide whether the repayment period fits his requirement.
- Loan amount
Like the two earlier factors, even the loan amount against gold differs for different lenders. Some banks provide a maximum loan of 20 lakhs while others offer up to Rs. 2 crores. This becomes a crucial point as the individual willing to take a gold loan of one crore won’t be able to get the credits from lenders with maximum limits of Rs. 20 lakhs.
- Loan against gold
Almost all the banks do not provide the full value of the gold in the form of a loan. Some banks offer a loan amount of 70% of the gold value, while others provide as high as 90%. The lower loan against the gold ratio will reduce the chances of an individual to avail of the higher loan amount.
- Repayment structure
Banks and financial institutions have a different repayment structure. Some banks allow only interest payments during the repayment tenure and principal amount at the end while others don’t allow such provisions.
- Low Credit Score
The economy is going really down and the bank cannot build trust easily. It can be hard to avail of a loan during such circumstances. However, gold can act as a saviour. As gold loans are collateral-based, banks can take away loans and recover the amount. Don’t worry, in case of timely payment, your jewels will be returned to you. Most of us struggle with low credit scores. Gold Loan is only that loan by which we can optimize our returns. It is hassle-free, quick and fast.
I hope that these points helped you. Do well research and compare different schemes offered by different banks. Don’t sell your gold as it is the most vital resource you can have with you.