The market of gold loans surged considerably after the spread of covid-19 in India. People who faced a shortage of money took gold loans for a short interval of time. So when people do not have enough funds but possess gold, they can take a gold loan. A gold loan should be taken for immediate requirements and a short period.
Outbreaks of covid have impacted the financial growth as well as individuals. Many suffered from job loss and failure in business income. When a family faces misfortune, especially a financial one, then to meet the crisis, people can take salary overdraft, payday loans, loans against FD, covid loan, mutual fund loan, or a personal loan of any type. But one of the prominent loan options is a Gold Loan as it can be used as a last resort.
There are a few emergency funding options like credit cards and loans against gold, which can help short-term needs. However, many people do not have access to credit cards, so a gold loan is considered the next best alternative. Further, it becomes accessible for people without getting formal credit. Therefore, banks and NBFCs prefer giving gold loans primarily to those borrowers who cannot access formal credit within a period. Moreover, individuals with whom formal credit is not available for personal and business needs are also provided with gold loans. The banks provide gold loans at the interest rate ranging from 12 to 16%, whereas NBFCs provide gold loans from 14%, extending to 26%.
Many people face another problem that is having a poor credit score. And this leads to the denial of personal loans from most banks. A gold loan is a better option for people with not an excellent credit history or credit score. Most gold loan companies and banks provide a gold loan offense if a person has a bad credit history, but a sound repayment track on the gold loan can improve the credit score. In a gold loan, gold serves as a security and has a good value attached to it, which increases the propensity of repayment by the borrower. So doing prompt payment of monthly gold loan EMIs can boost the credit score and creditworthiness of the borrower.
Additionally, a gold loan comes with maximum flexibility regarding how the borrower wants to repay the loan amount. Loan repayment can be done in various ways like equated monthly installment, paying interest per month, part payment of the loan, etc. The maximum repayment period for a gold loan extends to 1 year or more depending upon the lending institution.
Gold is a valuable asset and helps individuals get simple access to credit. Still, the short repayment period of gold loans can be challenging as repayment must be done to reduce the financial liability. So the amount borrowed as a gold loan must be for urgent purposes only. The borrower must have enough provision to repay the loan so that he may not lose his gold asset. Lenders find it easy to liquidate the gold assets, and auctioning the pledged gold is the last resort for the lenders.
Most of the lending institutions serve three notices after the borrower makes default in the gold loan payment. The first notice is sent when the due date of payment has already passed. The second notice is sent after six months of default, and the third or last one is sent to the borrower after one year of default. Therefore, choosing the right lender for a gold loan is essential to save the gold from getting auctioned.
The non-banking financial companies solely focus on assets regarding gold loans—the faster processing of gold loans and better customer experience. On the other hand, banks have gained greater public trust as custodian of wealth in gold loans. The higher loan per gram amount, minimum processing time taken, higher security, and recovery process are the strengths of Banks in Gold Loan. But if an individual is in urgent need of funds and is ready to pay a comparatively higher rate of interest, like in Muthoot gold loan rate, then an NBFC is ideal for him.
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