6 Reasons Why A Gold Loan Bubble Is Within The Offing

6 Reasons Why A Gold Loan Bubble Is Within The Offing

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GOLD LOAN?

A gold loan is a secured loan. People can borrow it from the bank lender to mortgage their gold as collateral. How gold loans work:- You have to pledge your gold jewellery. After that, the bank provides a loan.

THE DOCUMENT IS REQUIRED FOR A GOLD LOAN:-

Identity proof:-

  • Aadhar card
  • PAN Card
  • Passport
  • Ration card
  • Voter ID card

Address proof:-

  • Electricity bill
  • Ration Card
  • Telephone bill
  • Ration card

BENEFITS OF GOLD LOAN:-

  • Flexibility to use
  • Secure
  • Low-interest rate
  • Fast processing
  • No processing fees
  • A credit score is not required
  • No foreclosure charge
  • No need for credit history
  • Quick Loan disbursal 
  • Minimal paperwork
  • Safe custody of gold

CUSTOMER SEGMENT FOR GOLD LOAN:-

  • House Purchase
  • Medical expenses
  • Children’s education
  • Agriculture

SOME CONS OF GOLD LOAN:-

  • Loss of asset
  • Short tenure
  • High margin

WHO IS THE ELIGIBLE FOR A GOLD LOAN?

Anyone eligible for a gold loan who owns gold jewellery.

TENURE OF THE GOLD LOAN:-

They are usually short and range from 3-12 months. It can be up to 24 months at the most.

INTEREST RATES:-

The interest of gold loans depends on the bank-to-bank. It ranges from 9..24% to 17%.

6 REASONS WHY A GOLD LOAN BUBBLE IS within the OFFING:-

  • Fall of microfinance institution
  • Gold prices are increasing
  • Gold price could peak anytime
  • The industry is to concentrate in the southern area.
  • Competition is growing
  • Private company against lower margin.

There are also some reason so that a gold loan bubble in the offing:-

The gold prices could peak anytime, but when it starts falling as they surely will –the loan defaults will also start rising. As the average loan size of Manappuram is around Rs 70,000, it is quite clear that the borrowers are not that rich. They probably come from middle and lower-middle-class backgrounds, where vulnerabilities are higher.

The industries are also concentrated in the south to 75 percent of Manappuram’s business is in the south of India. The microfinance business hits a speed-breaker precisely because it put all its eggs into one basket – Andhra Pradesh. The gold loan business is not that bad, but the concentration in the south is still very heavy for comfort.

The competition is growing. Interest rates are high since the gold lenders are competing with the money lenders. With the lending rates of 20-22 per cent for non-banks and a bit lower for banks, the margins are nearly mouth-watering. Almost all the finance companies are getting into the gold loans, with Mahindra Finance being a recent entrant from the last year.

The growth rates will start decreasing progressively as the business grows. Rates of 100-200 per cent gold are more or less over. Muthoot is probably going to ascertain its annual rate drops down from 96 per cent in last year to 43 per cent within the year 2011-12, said Kotak.

All private companies lend against the lower marginals. Unlike banks that lend 55-65 percent of the worth of gold mortgaged, private companies give higher proportions of 70-80 percent loans. This means that the safety margins are very less for them. Moreover, as the RBI gets into the action, they have to borrow from the market at higher costs to collect funds for their loan books. Muthoot Finance is currently within the market to boost the non-convertible debentures at 12.25 per cent.

SOME THINGS TO REMEMBER WHILE APPLYING FOR A GOLD LOAN:-

  • Compare rate
  • Pick a lender who offers you the simplest rate
  • Read terms and conditions carefully
  • Do not take a gold loan from a lender who has a bad review.
  • Loan amount
  • Tenure
  • Repayment method

MISTAKE TO AVOID WHEN APPLYING FOR A GOLD LOAN:-

  • Not comparing your option
  • Not checking creditor
  • Choosing the wrong repayment method
  • Not knowing the hidden charges
  • Wrong tenure of repayment
  • Not checking the credit reports

CONCLUSION

A gold loan is a good option, but you have to keep in mind that if you do not deposit the money back, they will surrender your gold.Another the best option is to sell gold rather than getting gold loan. Also Getting a gold loan or any loan for that matter is a difficult and long process as compared to Cash against Gold which is instant & also gives you the actual value

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