Rising demands for gold loans have increased because of various reasons as the Covid situation has crushed the economy in a bad way. This Covid -19 virus has not only affected the health of an individual but has also risked the wealth sources and gold loans have been aiming to uplift such situations by providing financial support.
Most people in these times are facing job loss, reduced salary, or slowed down business circumstances. Under such situations, the financial pressure builds up and at that point of time, one takes gold loans into consideration. For some, they need more financial help to run household expenses, while others may be looking for supporting their family during these hardships by taking up credit money. Moreover, there are also entrepreneurs availing gold loans to uplift their business conditions so as to earn a little more profit. Thus gold loans have been catering to these needs as a financial support system by availing loans in exchange for mortgaged gold assets.
Further mortgaging gold for financial benefits has always been a system that has grown in these modern times and has come under the services of financial institutions. Gold loans are granted within a short period of time by various banks and non-banking financial companies. One suitable example is the HDFC gold loan, which falls under the banking financial institution.
We will take a brief look at the reasons which has increased the market for gold loan:
Low interest rates- Gold loans come along with low interest rates and are much cheaper as compared to personal loans and credit cards. These credit cards and personal loan schemes take up a lot of money in the name of interest which is not applicable in cases of a gold loan. Gold loan interest rates start from 9.75% and can extend to a maximum of 16% where as credit cards charge a rate of interest between 16% to 32% and personal loans charge between 13% to 26%. This interest rate is charged on the principal amount. So if you have borrowed 1 lakh on the basis of your gold assets, considering an interest rate of 10% you will have to pay INR 10,000 for interest in case of gold loans which might increase up to INR 20,000 for unsecured loans.
The surge in the gold prices- Gold loans are easily granted, saves time during processing and it one of the best options to credit money while in financial need. Other than all these criteria what has made gold loans more convenient and beneficial for the borrowers is the surge in the gold loan prices which has taken since Covid -19 has started. According to the records, gold prices have a sharp rising status since January. Currently, the gold prices are marked as INR 55,000 per 10 gram having 24k purity, according to the reports of 19th August 2020. Since prices have been raised the option of gold loan is being used more than any other as borrowers are getting high credit amount on the gold assets.
Increase in LTV ratio- Since Covid has crashed the Indian economy and people are getting more dependent on loans, especially gold loans, thus RBI has increased the loan to value ratio (LTV) from 75% to 95%. This means that 90% of the gold value, which has been provided as collateral, will be provided as the credit amount. This has made gold loans more approachable as the loan to value ratio has increased.
Since the lockdown situation is not existing anymore and people are slowly getting back to their normal lifestyle gold loan market is supposed to increase further as most people are in search of liquid cash and working capital to provide support to their family and to lift business during these hard times.
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