Consumption Loans

1. Introduction

• Growing need for quick financial support: In a growing economy like India, the need for quick access to capital is extremely high. This easy access helps deploy money towards productivity as well as towards increasing consumption.
• How gold loans are being used for consumption expenses: Gold loans are a type of collateral backed loans which provide easy and quick access to funds without limiting the end use of those funds. This makes gold loans an ideal source of availing funds to fuel consumption needs.
• Overview of the article: In this article we will learn what are consumption loans, and how gold loans can be a perfect alternative to fund the consumption needs.

2. What Are Consumption Loans?

• Meaning of consumption loans: Consumption loans, as the name suggests, are a type of loan for personal consumption. i.e. the purpose of these loans is to help the borrower access funds to cover personal consumption needs.
• Common expenses covered under consumption needs: Consumption loans can help the borrower cover consumption needs or expenses from expenses related to survival to expenses to expenses related to lifestyle maintenance.
• Why borrowers look for short-term funding options: Short-term funding options prove to be the most sustainable option to cover consumption needs. Short-term loans typically have a lower net interest outflow, and consumption may not necessarily be productive or capital generating, this makes these loans the most suitable option.

3. How Gold Loans Work as Consumption Loans

• Using pledged gold to access funds quickly: To fund consumption expenses, an individual can opt for a gold loan. The borrower pledges their gold as a collateral to access the capital. These loans are typically fast, secure, attract lower and interest rates.
• Short approval process: Gold loans require lesser time for assessment and approval. This is a big positive as it results in a quicker disbursal. Lenders like indiagold provide loan disbursal in as low as 30 minutes!
• Flexible repayment options: Gold loans also come with a flexible repayment option, essentially helping the borrower repay their lending obligation efficiently.

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4. Common Consumption Needs Covered by Gold Loans

• Household Expenses: Household expenses are one of the biggest consumption needs that can be covered by gold loans. Since gold loans are easy to avail and require minimal time for processing, these serve as the perfect option to cater your household needs.
• Medical Emergencies: Medical emergencies often require the individual to arrange funds on an urgent basis. To fund these expenses using a loan, it is prudent to avail a loan which can help with quick funding. Gold loans are a perfect option in such scenarios.
• Education Expenses: Education expenses often require a large sum of money, which may be difficult to arrange via an unsecured lending route. Gold loans being a type of secured lending helps avail up to 75% of your gold value as financing.
• Travel and Festive Spending: Travel and festive spending can also be covered with the help of gold loans as it attracts a lower interest rate compared to traditional loans, essentially helping the borrower get funding with a net lower outflow of capital in the form of interest payment. indiagold offers one of the lowest interest rates in gold loans.

5. Benefits of Using Gold Loans as Short term Consumption Loans to Cover the Needs

• Quick access to cash: Gold loans require less time, i.e. more ye journey is extremely quick from application to loan disbursal. This proves to be one of the biggest advantages of using gold loans to cover consumption needs.
• Lower interest rates compared to some unsecured loans: One of the biggest benefits of gold loans is that compared to traditional unsecured loans, the lenders are able to offer a lower interest rate. This is because the lender's risk exposure is covered by the collateralized gold. Lower rate of interest translates into a lower cost of borrowing, which is a positive for the borrower.
• Minimal documentation: Gold loans are collateral backed loans, and by nature these do not require lengthy documentation. The lender does assessment on the collateralized gold to ensure eligibility.
• No impact from low credit scores in many cases: Since gold loans are backed by the borrower’s gold as a collateral, the requirement of a minimum credit score or credit profile goes away, since these are a measure to gauge the risk associated with lending to the borrower and the borrower’s gold collateral serves the purpose to safeguard

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6. Things to Consider Before Taking a Gold Loan

• Interest rates and charges: It is crucial to be aware of the interest rates and charges. Considering these factors can help the borrowers make a fair comparison between lenders and choose the most cost effective loan option. indiagold offers one of the lowest interest rates in the market.
• Loan-to-value limits: Loan to value ratio (LTV) is a measure of the maximum amount of loan that can be availed against the market value of the gold collateral. A higher LTV ratio allows the borrower to avail a higher loan amount and vice versa. Reliable lenders like indiagold offer LTV as high as 75% which is the RBI prescribed limit on gold loans.
• Repayment terms: It is important to consider the repayment terms before choosing a lender. Doing so allows the borrower to make an informed decision.

7. Responsible Borrowing Tips

• Borrow only for genuine needs: It is recommended to always only borrow for genuine needs. Borrowing to support non-essential consumption needs may result in financial difficulties.
• Understand repayment obligations: Understanding repayment obligation is imperative. It helps plan repayments and repay the loan efficiently.
• Compare lenders before applying: Comparing lenders before applying for a loan can help choose the most suitable lender who fares well on your criteria.
• Avoid overleveraging pledged gold: Overleveraging gold loans can result in financial difficulties for the borrower. The gold collateral may get auctioned/liquidated if the borrower is unable to repay the loan or defaults.

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