When it comes to availing of a loan, a gold loan becomes the most viable option for individuals. This is a secured kind of loan and gives you the required amount against the pledged gold assets. Moreover, procuring a gold loan is the easiest as the disbursal is as fast as a few minutes. This has resulted in a rise in the number of individuals obtaining a loan when they feel cash strapped.
The rise in the covid-19 pandemic has added to the surge in the price of gold. This, in turn, has resulted in an increased demand for gold loans. According to the World Gold Council, the demand is going to skyrocket in the fiscal year of 2021. This increasing demand has brought banks and other non-banking financial institutions on their toes to meet the rising demand for a gold loan. Here is how lenders are prepping themselves to meet the rising gold demand.
The increasing shortage of cash flow among small firms and needy individuals have recommenced the attention of lenders on gold loans on immediate notice. Various banks have expanded their gold loan availability options by providing the facility in more and more branches than the existing ones. Several banks have also reorganised their structure of the gold loan and other facilities related to it to increase its effectiveness.
Bullet repayment facilities
The increasing stress of individuals to meet their financial needs during the pandemic has convinced many banking sectors to come up with specific bullet repayment offers for the borrowers. The bullet repayment facility enables individuals to pay out interest components throughout the tenure of the gold and the principal amount is paid later at the end of term expiry.
Focus on small scale businesses
With the increasing demand for gold loans, the primary focus of banks will be small scale businesses. These sectors have been badly hit by the pandemic and are in immediate need of liquidity. Since gold loans are the easiest and most affordable option, banks are more focused on lending a helping hand through their gold loan facilities. However, this does not mean that lenders are going to comprise any of the ongoing provisions for other customers.
New gold loan vertical
Banking institution such as Canara Bank has merged with Syndicate Bank and generated a remarkable gold loan portfolio of Rs. 56 thousand crores. This unique vertical of gold loan has been created to prioritise credit to help those who are facing cash flow hurdles.
Reduced interest rate
The ongoing gold loan demand has forced many banks to reduce their rate of interest. The gold loan market has become more competitive which has urged banks to cut their interest rates so that banks with the lowest interest rates are chosen by more and more borrowers. This includes Canara Bank, which has significantly lowered its interest rate after being aware that borrowers are preferring other banks over them due to their comparatively high interest rate.
Guaranteed quick disbursal
With more and more people opting for gold loans and looking for quick evaluation and disbursal, banks and other financial institutions are offering guaranteed quick disbursal of the loan. If the borrowers have their KYC documents handy then getting a gold loan sanctioned is only a matter of half an hour.
Banks are offering a good deal against the pledged assets. Bank such as ICICI Home finance is offering a maximum amount of Rs. 10 lakhs, whereas Canara bank is giving the facility of a maximum of Rs. 20 lakhs against the security.
Factors to keep in mind while availing of a gold loan
As a gold loan borrower, you have to keep in mind certain important factors before availing of a gold loan, which is given below.
The loan to value ratio is 75% of the pledged gold.
The more the purity of the gold the more will be the value and loan amount.
The gold you are going to pledge must have a minimum of 18 carats.
The facility of prepayment is not available on gold loans.
A processing fee of 1% can be charged by the bank.
Other charges, such as valuation fees can also be imposed by banks.
The rising demand for gold loans is making it a very attractive option for borrowers. Although it does not have any bearing on your credit score, it can become a bit tricky to avail of this loan if you are unsure to repay your debts on time. As, if you are unable to pay your debts on time, the lender will simply sell off your valuable assets to get back the loan amount. So make sure to make the repayments on time and keep the duration short always.