Why has Demand for Gold Loans Increased?
With squeezing household incomes for most of the middle-class families due to loss of jobs, pay cuts and undefined source of income with the closing of businesses, more and more people are opting for gold loans.
For some, they need cash to run their household expenses while others have to pay their bills. Opting for a moratorium doesn’t seem to be the perfect solution for the situation which has arisen due to the pandemic. Some people say they don’t want to apply for the moratorium as it will tend to increase their loan burden with the accumulated interest.
Those who have lost their job needed money for the survival of their family and mortgaging their gold can arrange some funds in less time.
Some reports also prove these facts that after upliftment of the lockdown more number of people are coming to jewellers and gold loan lenders to sell/mortgage their gold to get cash in hand.
Lower Interest rate: Experts also advise borrowing against gold as it is much cheaper than personal loans and credit cards which costs huge and can lead to a debt trap for borrowers if not managed properly. This is because the interest rate of a personal loan or credit card borrowing ranges from 10 to 16% and from 16 to 32% p.a respectively. So, in the case where the borrower is not able to manage his/her loans properly, it can result in huge accumulated interest, stress and in the worst case it can end up borrowing again in order to repay the existing loan.
Surge in the gold prices: Gold loans are comparatively cheaper, easily available and it can get you funds in very less time. Apart from all these benefits what makes them even more attractive and affordable is- the huge surge in the gold prices. Domestic gold prices have kept on rising sharply since January this year and currently, it is 55,000 per 10 gram (24k purity) as of 19th August 2020. These soaring prices have unlocked huge value for gold mortgages for people who are looking for funds, and since gold prices are at peak mortgaging their gold can get them the best of the price.
Increase in LTV ratio: Also, gold loan providers surged after RBI decided to increase the permissible loan to value ratio (LTV) for gold loans to 90% from 75%. This has also made gold loans favourable for those who are financially hit by COVID-19 pandemic and are looking for funds to meet their requirements.
With the lockdown now being lifted, the gold loan industry is expecting an increase in the demand for gold loans as the majority of people are looking for liquid cash and working capital to push their businesses which are hit by the lockdown due to the corona crisis.