Gold loan demand growing with youngsters preferring experiences over possessions

Gold prices have seen a jump as investors rushed to safe-haven assets after banking crises in the US and Europe. The recent surge in gold prices along with other factors has led to an increase in the demand for gold loans. As a result, the gold loan industry has seen an uptick in business, recently. 

“Although customers will be eligible for a higher loan amount per gram of gold, gold price is not the only factor that directly impacts the demand for gold loans. However, we are witnessing a surge in demand driven by the revival in the economy, adding to the fact that the demand for gold loans is always need-based,” said George Alexander Muthoot, MD, Muthoot Finance.

Gold price opened today with an upside gap at Rs 59,231 per 10 gm levels on the back of US Fed rate hike. Gold crossed the mark of Rs 60,000 per 10 gm on Monday. 

Alexander added that there are some trends observed in the demand for gold loans in the recent times. “We at Muthoot Finance, have observed a hike in demand from youngsters. With a spike of more than 50 per cent YoY, youngsters are now giving more preference to experiences over material possessions. They are spending more on travel, concerts, and other allied leisure activities. Further, the company has also witnessed a 12 per cent year-on-year growth in demand for gold loans from HNIs.” 

The recent macroeconomic climate has led investors to seek safety of gold, thereby leading to an increase in gold prices. “Rising gold prices provide an additional opportunity for borrowers, where they can extract greater value from the gold, and hence a greater amount of loan given that the loan value is pegged to the overall value of gold ornaments. Progressive lending organizations provide opportunities proactively to borrowers in case they would need to enhance the loan amount against the gold ornaments pledged,” said Sumit Sharma, Founder & Director - Radian Finserv, a Bengaluru-based gold loan non-banking financial company.

What should existing gold loan borrowers do? Should one use the enhanced limit due to the rise in gold prices? “Smart borrowers can use this effectively to use the enhanced limit, though also need to be aware of the enhanced demands this can place on repayment and interest. The increase in interest payment is particularly relevant as there is a trend of increasing interest rates, and this would in any case lead to higher interest payments; and when coupled with higher loan amounts, borrowers should be cognizant of the additional demands placed to service the interest,” said Sharma. 

“Overall the demand for gold loans has increased around 15 percent as compared to last year. Gold loans have been a popular financing option for a long time, as they are easy to obtain and offer relatively low interest rates. The demand for gold loans tends to increase during times of economic uncertainty especially by people in need of urgent money," said Rajesh Shet, CEO and Co-Founder, SahiBandhu, a gold loan platform backed by The Manipal Group. 

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