Gold Rate Surges, Will Gold Loans Become First Choice of Borrowers?

Gold prices in India have been on an upward trend recently. As of today, April 8, 2024, the price of 10 grams of 22 carat gold is around Rs 63,600, which is an increase compared to earlier this year. There was a price hike of around Rs. 850 for 10 grams of 22 carat gold on April 1st, 2024.

This upward trend seems to be continuing. Looking at a year-long timeframe, gold prices in India have risen by about 14%.

Also Read: Gold Price Today Rises In India: Check 22 Carat Rate In Your City On April 08

Experts feel that the rising trend of gold prices in India can have a positive impact on gold loans in a couple of ways.

Since gold loans are secured by the pledged gold, a higher gold price translates to a higher value for your collateral. This means you can potentially borrow a larger sum against the same amount of gold compared to when prices were lower.

Opportunity for borrowers

Sumit Sharma, founder-Radian Finserv, said, “Cognisant of the consistent upward trajectory in gold prices over the long term, we recognise the current surge as an opportunity for borrowers to leverage their idle assets through gold loans.”

Despite minor fluctuations, the enduring trend suggests continued growth, as reflected through the historical trend of steady appreciation in gold prices, Sharma highlighted.

Sustained demand

Sharma underlined that in light of the prevailing economic uncertainties, gold’s allure as a stable investment offers borrowers a reliable avenue for growing financing needs. This observation aligns with the industry’s steady demand for gold loans, indicative of a sustained trajectory rather than a fundamental shift, he added.

Why gold loans are popular?

The short-term nature of these loans, particularly those spanning six months or less, has gained prominence, with several financial institutions now offering tailored solutions to meet this demand.

“The simplicity of monetising gold coupled with competitive pricing has positioned gold loans as an attractive proposition, boasting exposure levels often surpassing the acquisition costs of gold. Furthermore, the absence of EMIs and the availability of bullet payments at intervals of three or six months enhance the appeal of gold loans as flexible financial instruments,” Sharma said.

“Against the backdrop of India’s substantial domestic gold reserves, estimated at over 25,000 tons, the ongoing mobilisation of this asset presents significant opportunities, particularly among lower-income segments,” Sharma added.

Here are some things to consider:

• Interest Rates: Even with rising gold prices, compare interest rates offered by different lenders to get the best deal.
• Repayment Strategy: Have a solid plan for repaying the loan to avoid any issues if gold prices go down in the future.

Caution

It’s important to remember that gold prices can fluctuate. While a rising trend might benefit you now, a sudden price drop could lower the value of your collateral and potentially trigger a margin call from the lender if the loan value falls below a certain threshold. Overall, the rising trend in gold prices can be advantageous for gold loans, but careful planning and understanding the risks involved are crucial.