Life’s curveballs often thrust us into unforeseen emergencies, sending our financial plans into disarray. When the need for instant funds arises, people typically turn to loans as a reliable means to weather the storm.
“Loans come in various forms, catering to short-term and long-term needs. Personal loans have historically been the go-to choice for swift financial assistance. However, the current economic landscape, marked by rising interest rates, has made personal loan EMIs increasingly burdensome. In such turbulent times, gold loans can emerge as a dependable and financially savvy alternative,” says Sumit Sharma, Founder of Radian Finserv, an RBI-approved gold loan NBFC.
Whether it’s covering immediate expenses like a child’s education, unexpected medical bills, financing a wedding, urgently embarking on a journey, or kick-starting a new business venture, gold loans can help you out during uncertain times. These secured loans are readily available from banks and financial service providers, allowing individuals to leverage their gold assets as collateral.
Speedy processing and instant funds: In today’s tech-driven world, gold loans have undergone a remarkable transformation, becoming one of the quickest, most straightforward, and most secure financing solutions, especially when time and convenience are of the essence. Modern gold loan platforms streamline the application and approval process, ensuring rapid disbursal of funds.
Simplified eligibility criteria: Gold loans come with lenient eligibility requirements compared to other financing options. “Strong credit scores or extensive income documentation are not prerequisites, making them accessible to individuals seeking immediate financial relief, such as those funding higher education expenses,” says Sharma.
Generous Loan-to-Value ratio: Quick access to substantial funds is imperative during medical emergencies or unforeseen crises. Sharma says, “Acquiring a significant sum of money on short notice can be challenging and often comes with a high price tag. Gold loans, on the other hand, offer a viable solution. They boast a high loan-to-value ratio (LTV), enabling borrowers to tap into their idle gold assets swiftly and efficiently.”
Competitive interest rates: Given their secured nature, gold loans typically offer lower interest rates compared to unsecured loans like personal loans or loans secured by property, business loans, and corporate loans. During times of crisis, the allure of lower interest rates can be a game-changer, reducing the overall repayment burden and facilitating effective debt management.
Flexible repayment options: Gold loans grant borrowers the flexibility to manage their repayments according to their financial circumstances. “Some gold loan schemes allow borrowers to initially make interest-only payments, with the principal amount due at the end of the loan tenure. Alternatively, borrowers can repay the entire loan amount, including the principal and interest, at the end of the loan tenure,” says Sharma.
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BT’s take
As with any financial transaction or loan, there are pros and cons. While gold loans serve as a swift financial solution, there are potential drawbacks that the borrowers should be aware of. Gold loans carry a sense of “last resort” as the family ornaments are pledged. While this is increasingly becoming a smart choice that helps monetise a dormant asset, borrowers have not always felt comfortable. There is also a risk of losing one’s valuables, as gold pledged as collateral can be forfeited if loan repayments falter. Despite typically offering lower interest rates compared to other loans, gold loans still carry financial costs that necessitate close scrutiny, especially loan plans where the interest rate jumps significantly in the event of a delay in payment. The loan amount is contingent on the appraised value of the gold, which can fluctuate, potentially resulting in a lower sum than anticipated.
To harness the advantages of gold loans while mitigating associated risks, borrowers must diligently peruse loan terms to evaluate their repayment capacity. A low monthly payment should not result in difficulty paying the entire amount at the end of the loan tenure. Prudent borrowing practices and punctual repayments are pivotal factors for a successful gold loan experience, ensuring that the convenience of quick funds does not eclipse the importance of responsible financial management.