As of May 2021, the organized gold loan market AUM in India is nearly Rs.4 lakh crore, and it is growing at approximately 15% annually. These statistics indicate rising demand for gold loans in India, thanks to a high LTV of up to 75% as per RBI guidelines. The gold loan tenor usually ranges up to 12 months. Therefore, individuals opt for a gold loan primarily to address short-term credit requirements.
However, several financiers also offer gold loans with a longer tenor of up to 2 to 5 years. Although it reduces the hassle of repledging gold articles to continue servicing the loan, the longer tenor may incur higher interest.
Thus, individuals need to assess their requirements and choose between short-term and long-term gold loans accordingly. Additionally, to make an informed decision, they should also get an insight into different repayment options available for gold loans.
Why are long-term gold loans in demand?
Long term gold loans have garnered popularity mostly among small businesses. This increase in their demand can be owed to the fact that these loans do not require borrowers to repledge their gold ornaments to increase the tenor. Borrowers can enjoy tenor flexibility without having to renew their loans multiple times.
The economic crisis arising due to the pandemic has left many businesses seeking financing solutions to help meet their immediate funding requirements. Long-term gold loans have presented borrowers with a viable choice wherein they can obtain the funds without having to see to their immediate repayment.
Nonetheless, irrespective of the tenor, the flexibility of repayment options for gold loans makes them suitable financing choices for individuals and small businesses alike. Following is a look at the repayment options available for gold loans.
Gold loans and their flexible repayment
One of the primary benefits of availing of a loan on gold is that you can choose from different repayment options available in India.
- EMI facility
In this regime, you can repay the loan through monthly equated installments or EMIs like any other debt. If you want to reduce your interest burden, you should opt for a shorter tenor. While the EMIsare affordable with a long-term gold loan, you end paying more interest in the end.
- Partial repayment
Under this repayment option, you need to pay the interest periodically throughout the tenor and the principal at the end.
- Interest payment
You can repay the entire interest upfront at the onset of the repayment schedule and principal later in this option.
Opting for a gold loan becomes easier owing to the availability of these repayment options. Besides flexible repayment options, a gold loan also accompanies several other benefits that borrowers can consider.
Benefits of gold loan
Since almost every Indian household possesses some amount of gold, they can monetize it to secure funds during a financial crunch. Besides, this credit option is viable for the reasons below.
- Competitive interest rates
Being an asset-backed credit accompanies a competitive gold loan interest rate. It results in lower borrowing costs and easy repayment. However, the interest rates also alter with different lenders. Hence, before applying for this credit, individuals should compare interest rates to lower their cost of borrowing.
- Simple eligibility
Unlike other secured or unsecured loans, a gold loan comes with easy-to-meet eligibility criteria. For instance, credit scores do not have much role to play in a gold loan’s eligibility. Thus, individuals with a poor credit score or no credit history at all are also eligible for this credit. In simple words, any individual possessing gold can qualify for the best gold loans. However, the age of the applicant should be from 21 to 70 years.
- High loan corpus
Depending on the LTV, you can avail a high loan value by pledging gold articles. As per RBI guidelines, selected lenders now offer gold loan LTV of up to 90%. However, lenders decide on LTV after a risk assessment and checking the gold purity. For instance, gold purity ranges from 18carats to 24 carats, and the higher the carat, the purer the gold.
In such cases, you can qualify for higher LTV by pledging gold articles with higher carats.
- No hidden charges
Lenders often impose additional charges like processing fees, part-prepayment, and foreclosure fees as and when applicable. While processing fees are mandatory to avail of any loan, selected NBFCs like Bajaj Finance Limited do not levy any hidden charges on this loan. Hence, you can part-prepay and foreclose a gold loan without incurring any additional charges.
Due to the reasons above, the demand for gold loans is always rising, be it long or short term. However, in either case, you should plan the repayment for better debt management.
