Gold has long been a valued commodity, particularly in India where it is considered auspicious, and has been in use for centuries in the form of jewelry, coins and other assets. Though gold is a highly liquid asset, it wasn’t until recently that consumers leveraged it effectively to meet their liquidity needs.
Lenders provide loans by securing gold assets as collateral. Compared with the rest of the world, in India the gold loan market is big business. Until a decade back, most of the lending was in the unorganized sector through pawnbrokers and money lenders. However, this scenario changed with the entrance of organized sector players such as banks and non-banking finance companies (NBFCs) which now command more than 25% of the market.
It’s possible that anyone who has gold ornaments can avail a loan. It’s important to note that gold will be sanctioned after determining the value of your gold, less the weight of stones and other non-gold items on the jewelry.
Normally, the person who avails a gold loan has to to provide proof of residence and identity proof like PAN, Passport, Driving License etc.
Key Features of Gold Loans
Feature Comparison of Gold Lender Offerings
Loan Interest Rate Comparison Across Categories
A comparison of interest rates charged by lenders across loan categories above shows that gold loans fetch banks higher rates as compared to home loans and car loans. Hence, this category is being targeted aggressively by banks. However, NBFCs have a much greater focus on gold loans and continue to provide attractive loan features which enable them to charge higher rates, generate higher profits and grow rapidly in a singular direction.
Worry about ornaments?
Most of the banks and companies take utmost care not to damage the ornaments during evaluation or storage. However, this is always a risk.
For borrowers, gold loans have emerged as one of the best means of raising quick, short-term capital. For lenders, gold loans are more advantageous compared with home and car loans because of the shorter tenures, lower processing time and cost, and greater returns due to higher interest rates. These factors, along with appreciation in value of gold, have led to an explosion in the gold loan market. With everyone wanting a piece of this action, the organized sector is challenging the large unorganized gold loan market dominated by pawnbrokers and moneylenders, with NBFCs leading the pack due to simpler approval and disbursal processes, flexible products and better accessibility.