Top 6 Reasons Why Indians Prefer Gold Loans Over Personal Loans
India has always had a unique and deeply emotional relationship with gold. Beyond being a precious essence, gold carries artistic, religious, and fiscal significance in nearly every Indian ménage. It’s considered auspicious, a store of wealth, and a safety net for times of need.In fact, India is one of the largest consumers of gold in the world. Homes hold more than 25,000 tonnes of gold. Much of it is passed down through generations.
But in recent times, the role of gold has evolved from being simply cosmetic to an investment. Indians are increasingly using their gold to meet critical financial needs through gold loans. Banks, NBFCs, and cooperative societies offer these loans. They allow individuals to borrow money by pledging their gold.
At the same time, Personal loans have also grown popular in India due to their relaxed nature and flexible operation. So, why is it that when both options exist, Indians are leaning more toward gold loans?
In this composition, we will explore the top six reasons why Indians prefer gold loans over Personal loans. Each reason reflects not just fiscal considerations but also the socio-artistic fabric of India, where gold continues to hold unequalled value.
Lower Interest Rates Compared to Personal Loans
One of the most compelling reasons why Indians prefer gold loans over Personal loans is the interest rate advantage.
- Gold loans are a type of secured loan where the borrower offers gold as collateral. This makes the loan safer for the lender because if the borrower fails to repay, the lender can sell the pledged gold to recover their money. Because of this security, lenders offer lower interest rates for gold loans. These rates typically range from 7% to 15% per year. The rate depends on the lender and loan amount.
- Lenders mostly base personal loans on the borrower’s credit history. Lenders have to calculate solely on the borrower’s creditworthiness, income stability, and Repayment history. To cover this advanced threat, they charge advanced interest rates, generally in the range of 10 to 24 per annum.
This interest rate difference translates into huge savings for borrowers. For example, a person borrowing ₹5 lakhs via a personal loan at 18% interest pays significantly higher EMIs. The same amount as a gold loan at 10% incurs much lower EMIs.
In a nutshell, Lower interest rates make golden loans much more seductive, especially for middle- class and lower- middle- class families who want to minimise their Repayment burden.
Quick and Hassle-Free Processing
Time is frequently of the essence when someone seeks a loan. Whether it’s for a medical exigency, a child’s education fund, or a business demand, people want immediate access to finances.
- Lenders process gold loans quickly with minimal paperwork. Since the loan is backed by palpable gold collateral, lenders don’t bear the expense of income, credit history, or employment details. Numerous NBFCs and banks can expand gold loans within a few hours, occasionally, indeed, twinkles.
Personal loans require a detailed credit check. Borrowers must submit income evidence, payment slips, bank statements, and sometimes employer verification. Processing takes between 2 days and 2 weeks. The exact time depends on the borrower’s profile and the lender’s program.
In extremities, this difference is pivotal. For example, during a medical exigency, staying several days for a loan blessing may not be practical. That’s where gold loans have the upper hand.
In a nutshell, the ease of getting finances snappily, with little hassle, makes gold loans the favoured choice in critical situations
No reliance on Credit Score
A person’s credit score( CIBIL score in India) plays a major part in determining whether they can secure a Personal loan, and at what interest rate.
- Gold Loans. With gold loans, the borrower’s credit score is largely irrelevant. Since the lender formerly has the borrower’s gold as collateral, they’re far less concerned about credit history. This means that people with poor or no credit history can still get gold loans without much trouble.
- In contrast, personal loans are mostly based on the borrower’s credit history. A low CIBIL score can either lead to outright rejection of the loan application or result in higher interest rates.
Gold loans especially help Indians who remain outside the formal credit system.Farmers, small dealers, and individuals in semi-urban or pastoral areas frequently don’t have an established credit history. For them, golden loans are the easiest way to pierce formal credit.
In a nutshell, Gold loans homogenise borrowing by allowing those without strong credit backgrounds to access finances.
Flexible Repayment Options
Repayment inflexibility is another reason Indians prefer gold loans.
Gold Loans Borrowers are frequently given multiple Repayment options. They can choose to
- Pay only the interest during the loan term and settle the principal at the end.
- Conclude for regular EMIs of both stars and interest.
- Repay the loan in a lump sum whenever accessible.
This inflexibility is extremely useful for people whose inflows are irregular, such as growers, diurnal pay envelope workers, and small business owners.
- Personal loans, still, generally follow a rigid EMI structure. Borrowers must make fixed yearly payments of both principal and interest, regardless of their cash inflow. Missing EMIs can lead to penalties and a negative impact on their credit score.
In a nutshell, the Repayment inflexibility of gold loans makes them more adaptable to the fiscal realities of Indian borrowers.
Advanced Loan Amounts for the Same Collateral Value
Another crucial advantage of gold loans is the capability to secure an advanced loan quantum compared to secured loans.
- Gold Loans Depending on the quality and weight of gold pledged, borrowers can get loans up to 75 – 90% of the gold’s request value, as per RBI guidelines. For homes sitting on considerable gold reserves, this translates into substantial loan quantities without demanding to prove income or provide sponsors.
- Personal loans Personal loan eligibility, on the other hand, is constrained by the borrower’s income, credit history, and Repayment capacity. Indeed, if someone requires a large loan, they may not qualify unless their profile matches the lender’s threat assessment.
For illustration, a salaried person earning ₹ 30,000 per month may struggle to get a Personal loan beyond ₹ 5 lakhs. But if the same individual pledges family gold worth ₹ 10 lakhs, they could secure a loan of ₹ 7.5 – 9 lakhs.
In a nutshell,Gold loans let borrowers unlock the true value of their assets. They often allow higher loan amounts than personal loans.
Cultural Comfort and Trust in Gold
Incipiently, and maybe most importantly, Indians prefer gold loans due to artistic familiarity and trust.
- Gold is not just a piece of jewellery. It is considered “family wealth” — a safety net for difficult times. Using gold to adopt plutocracy isn’t considered opprobrious or parlous; rather, it’s seen as a smart way of putting idle means to use.
- Likewise,People in rural and semi-urban India have traditionally used gold loans.Original moneylenders, collaborative societies, and NBFCs have traditionally offered loans against gold for generations. This makes golden loans more accessible and culturally respectable compared to Personal loans, which are frequently associated with rigid bank systems and paperwork.
In a nutshell, the emotional and artistic comfort associated with gold makes Indians more inclined to use it as a fiscal tool.
fresh Advantages of Gold Loans Over Personal loans
Beyond the top six reasons, there are other noteworthy benefits of gold loans that further explain their fashionability
- Lower threat of Over-Indebtedness. Since loan quantities depend on the gold pledged, borrowers don’t limit themselves.
- Protection Against AffectationGold prices usually rise during inflation. As a result, borrowers can access higher loan amounts over time using the same gold.
- No Restrictions on End. Just like Personal loans, gold loans can be used for any purpose — education, healthcare, business, or particular charges.
- Pastoral Penetration With NBFCs and microfinance institutions expanding in pastoral India, indeed, people without bank accounts can access gold loans fluently.
Conclusion
Gold has always been India’s “ fiscal guardian angel, ” and its part as collateral in gold loans further cements this status. When compared with Personal loans, gold loans crop up as the clear fave due to lower interest rates, faster processing, no credit score reliance, Repayment flexibility, advanced loan quantities, and artistic trust.
For a country with vast ménage gold reserves, it makes sense that families would prefer to work their gold rather than burden themselves with precious, relaxed Personal loans.
As the fiscal ecosystem in India evolves, both Personal loans and gold loans will continue to thrive. But for millions of Indians, especially those outside the formal banking sector, gold loans will remain the go-to option for critical fiscal requirements.
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