One of the most extensive facilities of gold loans is, people can use it for any purpose, including medical emergencies. The surge in the rate of gold loan applications was witnessed during the pandemic and is still rising. After the Covid cases declined, the demand is still high.
There is no questionability about the usage of the funds advanced in a Gold Loan. Mostly, the lending institution does not ask for a good credit score or any income certificate or salary slip of the borrower. These traits of a gold loan make it popular among the masses as a short-term finance option. A gold loan amount credited can be used for numerous purposes, like weddings, travel, paying medical bills, etc, and timely repayment of the loan amount is the only concern of the crediting institution.
However, there are dedicated loans like home loans, car loans, medical loans, etc for most of the purposes mentioned above. When people face an urgent financial crisis they often prefer to get a gold loan and meet their demands. The justification is simple because gold loans come with lower interest rates, and there is no requirement for a credit score. The nominal documentation work that a gold loan approval requires makes it a convenient option than a personal loan. Moreover, almost everyone from any class can access gold loans due to its manageable process.
The quantity of loan offered against the pledged gold will be based on the advance value of gold jewelry per gram, depending on the purity of gold and it must be within 18 to 24 carats of gold. This amount is called the gold loan per gram. The interest rate will be the one-year MCLR rate and an additional 1.25%, considering the loan to value ratio. There are various factors on which the gold loan per gram is offered to the customer and it can be evaluated before a person takes a gold loan. But the borrower must make sure that he repays the loan amount within 12 months from the date of disbursement of the gold loan. But, to pledge against the gold loan, many lending institutions do not allow any gold bars, and bank gold coins of only 50 grams are allowed to be kept as security.
The decrease in Covid cases increased economic activity in many states after the restrictions were not made stringent. In the last few days, the demand for gold loans and customer walk-in has enhanced the Non-Banking Financial Companies. Most people are now opting for a gold loan amount of Rs 55000 to Rs 60000, as reported by the NBFCs. But after the Reserve Bank of India increased the loan to value ratio only for the bank, it negatively impacted the gold loan business of NBFCs. As a result, the LTV ratio went to 90% before the increase was just 75%. But this persisted only up to the 31st of March 2021.
Most of the NBFC has aimed to work on a growth rate of 15% or more. NBFCs are always known for filling the gap that the Banks create and thereby catering to individuals’ needs.
People who want to get a gold loan against pledging gold ornaments do not quickly get gold loans from Banks. Many ordinary people or small-time people in business do not get easy and instant credit to meet their immediate problems from the banks. NBFCs generally rescue those people and furnish them with Gold Loan as per convenience. The demand for gold loans is increasing due to the prevailing credit crunch and the lack of a moratorium and financial support policies laid down by authorities.
The gold loan schemes of Non-Banking Financial Institutions are a savior for most people and some small businessmen. NBFCs furnish them with a gold loan to get instant access to funds at a more extended repayment period. This makes NBFCs an alternative source of long-term capital. A person is free to choose whether he wants to take a loan from a bank or NBFC, or any local lender. Every lending institute has some advantages and drawbacks, but the convenience of the customer is the priority. Manappuram gold loan rate per gram and SBI gold loan rate per gram may vary, but being a potential customer, one must do a proper study of the gold loan market and then decide which institution to choose.
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