In recent years, India has witnessed a major shift in borrowing behavior. Instead of relying on unsecured personal loans, many borrowers are increasingly turning to gold loans. With gold lying idle in households — India holds over 25,000 tonnes of gold privately — these assets are becoming a quick source of credit.
But why exactly are Indians rushing toward gold loans? Let’s explore the key reasons behind this financial trend.
Why Gold Loans Are Winning Over Personal Loans
1. Lower Interest Rates
Gold loans generally come at 8–12% interest, while personal loans often range between 12–24%, making them more affordable.
2. Quick & Hassle-Free Processing
Since gold serves as collateral, banks and NBFCs require minimal paperwork and approve loans within hours.
3. No Credit Score Barrier
Borrowers with weak or no credit history still qualify for gold loans, unlike personal loans which heavily depend on CIBIL scores.
4. Flexible Repayment Options
Gold loans offer flexible repayment structures — interest-only payments, bullet repayment, or standard EMIs.
5. Higher Loan-to-Value Ratio (LTV)
With RBI allowing up to 75% of gold’s value as a loan, borrowers can unlock significant funds quickly.
6. Cultural Preference & Accessibility
Gold is considered a trustworthy family asset, and with widespread availability of lenders, gold loans feel safer and more accessible.
The Challenges of Gold Loans
While gold loans are gaining popularity, they come with certain risks:
Risk of Losing Gold if the loan is not repaid.
Short Tenures compared to personal loans.
Gold Price Dependency — loan value fluctuates with market prices.
The Bigger Picture: Changing Borrowing Habits
The shift toward gold loans reflects deeper economic realities:
Rising inflation & interest rates are making personal loans less attractive.
Easy access to gold loans is empowering middle-class and rural borrowers.
Financial institutions are actively promoting gold-backed lending.
Conclusion: Gold as the New Credit Hero
Gold loans are emerging as a preferred alternative to personal loans, offering speed, affordability, and accessibility. While borrowers must be cautious about repayment, this trend shows how Indians are unlocking the true financial potential of their household gold reserves.
FAQ
Q1. Why are gold loans better than personal loans?
Gold loans offer lower interest rates, faster approvals, and don’t require a strong credit score.
Q2. Is taking a gold loan safe?
Yes, gold loans from banks and NBFCs are safe as the gold is stored securely, but repayment is crucial to avoid losing collateral.
Q3. Do gold loans affect CIBIL scores?
Timely repayment of gold loans can improve credit scores, but defaults can have a negative impact.
Q4. How much loan can I get against gold?
RBI permits up to 75% of gold’s market value as a loan.
Q5. Who should choose a gold loan over a personal loan?
Borrowers needing quick cash, with weak credit history, or looking for lower interest rates should consider gold loans.
Published on : 30th August
Published by : SMITA
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