6 Reasons Why Opting for a Gold Loan than Selling Your Gold

1. Introduction

• Why do people consider using gold for financial needs?

Gold loans are a type of asset-backed loan where the borrower pledges their gold as collateral to the lender in order to avail a lending facility. These are one of the most famous types of loans in India, as gold loans provide various benefits such as quick financing, low interest rates, and no credit history requirements.

• Why taking a gold loan can be smarter than selling gold outright

Gold has proven to be a fantastic financial instrument, due to its ability to generate consistent returns over a long investment horizon, price stability, and solid liquidity. Selling gold for temporary money requirement may not be a smart financial decision as the long-term prospects of gold far outweigh the short-term capital needs. This is where gold loans can prove to be a reliable source to utilise one’s gold to avail instant capital while not losing the ownership and offers huge upside if you want to sell gold for cash.

• What to expect from this article?

In this article, we will discuss 6 reasons in detail why opting for a gold loan may be far more beneficial than selling gold.

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2. Reason 1: You Retain Ownership of Your Gold

• When you take a loan, the gold is only pledged — not sold: Gold loans, as the name suggests, are a loan that one can take against their gold asset. This means that for someone in need of immediate capital, one can borrow against their gold asset. This means that you can fulfil your capital requirement without losing ownership of the asset. Once the liability of the gold loan is repaid in full, the lender gives back the custody of the gold to the borrower.

• You get it back once you repay the loan: With gold loans, since you’re borrowing against your gold asset, the collateral is pledged to the lender. Once the loan is repaid in full, the asset’s custody is given back to the borrower.

3. Reason 2: Quick and Easy Access to Funds

• Minimal documentation and fast disbursal: One of the key benefits of gold loans over other traditional forms of lending, like personal loans, is that the borrower can avail funds at lightning speed! Since the loan is backed by the borrower’s gold collateral, the lender takes very little time to process the loan since stringent assessment checks don’t come into play. Lenders like indiagold offer gold loans with minimal documentation in a matter of minutes, making gold loans as a proposition a preferred way to avail quick debt capital.

• Ideal for urgent financial needs without losing your assets: Since gold as collateral covers the lender’s risk to some extent, the assessment and disbursal take little to no time. This makes gold loans an ideal form of loans for borrowers who are in need of urgent capital without having to lose their assets!

4. Reason 3: Lower Interest Rates Compared to Other Loans

• Gold loans are secured, so lenders charge lower rates than on personal loans or credit cards: Gold has proven to be an amazing financial instrument ,offering a very high liquidity due to its demand in the secondary market. This makes it a great collateral to borrow against. Since gold loans are secured by the borrower’s gold, i.e. in the event of default by the borrower, the lender can liquidate the collateralised gold to recover their dues, the lender’s risk exposure decreases dramatically. This enables them to pass on the benefit to the borrowers in terms of lower interest rates, especially compared to other forms of unsecured loans, such as personal loans, credit card loans, etc.

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5. Reason 4: Benefit from Future Gold Value Appreciation

• If gold prices rise, you still own the gold and can benefit later: Gold has shown a great price rally over the last couple of years, and a stable growth when a longer time frame is taken into consideration. Gold loan rate today has skyrocketed when compared with the price levels only a couple of years back. With gold loans, the borrower essentially collateralises their gold and does not lose ownership over the asset. This means that with increasing prices of gold, the borrower can still avail capital gains benefits on their gold.

• Selling now could mean losing potential gains: If one is considering selling gold for urgent capital requirement,s as against collateralising it to borrow, they could lose out on potential gains in the form of capital appreciation with ever-increasing gold prices. Gold’s rally in the last few years is a great example of how quickly gold can increase in value.

6. Reason 5: Flexible Repayment Options

• Borrowers can choose repayment methods that suit their cash flow — EMI, bullet payment, etc.: Gold loan lenders also offer various repayment plans to enhance customer convenience. Repayment plans like the EMI plan, where a fixed monthly sum is to be paid to the lender over a fixed term, which typically covers all the applicable charges, interest, as well as principal components. Borrowers can also avail a monthly interest payment with principal due at the end of the loan term, and a bullet repayment plan where the borrower can pay regular interest payments and make a lump sum payment towards their outstanding principal as per their convenience. Such customer-centric repayment plans make gold loans a no-brainer for many!

7. Reason 6: Emotional and Cultural Value of Gold

• Gold often has sentimental or family value: Gold in India holds a high cultural and sentimental value. This is evident from the fact that Indian households own a major chunk of gold globally. Liquidating or to sell your gold to satisfy urgent capital requirements can be a tough decision for many, hence availing gold loans makes much more sense as you don’t lose ownership.

• A loan lets you meet financial needs without parting with those heirlooms: Gold loans allow you to avail quick capital without losing ownership over the asset. Once the loan is repaid, you get your gold as it is, with no questions asked!

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