6 Reasons to Choose Gold Loans for Cash Needs Amid COVID-19



oi-Olga Robert


The price of gold in India hit a new all-time high of 47,980 rupees per 10 grams on May 18 amid global fears of recession due to the coronavirus pandemic. Bans imposed by states and across the country halted economic activity for over 50 days, putting jobs and livelihoods at risk for many.

If you are facing a money shortage and are looking for options to get credit, you can do so with any existing gold that is stored in your gold credit household rather than opting for personal credit.

Leading public sector banks like SBI (State Bank of India), Canara Bank and also smaller banks like ESAF and Ujjivan have recently launched new gold loan programs for those who may need funds in case of emergency.

According to the World Gold Council, an estimated 22,000 to 25,000 tons of gold are fallow as assets in Indian households. 65 percent of these are in rural India alone. To realize their potential, banks, including small financial banks (which mainly lend to farmers and small businesses), are now promoting loans that can be raised by mortgaging jewelry or gold biscuits in your home.

6 Reasons to Choose Gold Loans for Cash Needs Amid COVID-19

6 Reasons You Should Consider Gold Loans During The Pandemic:

1. Easy access

Amid social distancing norms and easing lending rates, banks are introducing special programs. For example, SBI’s Krishi Gold credit facility can be applied for online through the YONO app. Note that Canara Bank’s special gold loan promotion is available to customers through June 30th.

You can also go to a bank branch and put gold on it as collateral for the loan. Thanks to netbanking and other internet-based facilities, you can have the credit transferred almost immediately after approval.

Interest and installment payments as well as checking the account statement can also be made online.

2. The price of gold goes up, which works well in your favor

Last year, gold was one of the best asset classes due to economic uncertainties from the US-China trade war to the COVID-19 outbreak. An increase in the price of gold is beneficial as it increases the market value of the ornaments or coins you are pledging.

The lenders also offer you loans at a lower interest rate because the risks associated with holding are lower.

3. Perfect for unsafe / emergencies

As a rule, you would have to opt for a personal loan or use your credit card if you run out of money, both of which are associated with high interest rates.

Additionally, as a new hired, self-employed, small business, agricultural / unorganized sector, or stay-at-home parent, it can be difficult to prove consistency of regular income to a commercial bank that pays out loans or give credit cards on a credit score basis .

Gold loans come in handy for such individuals as they are issued instantly with the minimal documentation process, much like a credit card.

Lenders like Muthoot Finance allow you to borrow just Rs 1,500 against the metal, which will help you bridge the cash flow mismatches amid the pandemic for daily expenses, medical emergencies, etc. until you get your expected payments.

When applying for a gold loan, most lenders do not consider your creditworthiness as the loan is secured by the jewelry / coins you deposit with them.

4. Formal lending to the sector

With the expansion of the reach of formal banking systems, individuals no longer need to be exploited by relying on middlemen and informal moneylenders. The organized gold credit market, made up of banks, NBFCs (Non-Banking Finance Companies) and Nidhi companies, accounts for nearly 35 percent of the Indian gold credit market.

One can apply for loans ranging from 1,500 rupees to 1.5 billion rupees at interest rates as low as 7.85 percent (Canara Bank’s special interest rate for gold loans) and for a term of 7 days to 10 years.

Lending from the organized sector ensures the safe custody of the gold you have deposited as collateral. These institutes also offer free insurance coverage for the gold.

5. Overdraft for the self-employed

Those who run businesses often need working capital to fulfill large or unexpected assignments. Gold loans come with an overdraft facility that allows money to be withdrawn directly to bank accounts to pay EMIs or other fees without the ability to limit the number of loans.

6. Priority sectors receive cheaper credit

Agriculture is a priority sector for lenders in India. Farmers seeking loans to finance agricultural infrastructure and other agricultural activities can also apply for a 1 to 2 percent discount on interest rates.

Some NBFCs also offer women cheaper loans in exchange for gold.

Disclaimer of liability

The article is not an invitation to buy or sell the securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, partners and the author assume no responsibility for any loss and / or damage that may arise as a result of the information in this article.

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