Utilize gold or Jewellery to get easy loans

Gold prices have been on a roll. In fact, gold prices touched an all time high of Rs 21,000 per 10 grams. Of course, this means gold in its various forms has become more and more expensive over the past few years.

If you had paid around Rs 2,500 for a 5-gram gold coin in 2007, today the same coin will cost you around Rs 10,000-11,000 now. The lure of gold remains even at these high prices. It hasn’t deterred Indians from buying the yellow metal. Be it for a wedding, gift or even an investment, gold continues to dominate every purchase. Brides-to-be can still be seen clamoring for necklaces and ear rings.

Despite the manic obsession of Indians with gold, there’s no denying the inherent value of the yellow metal. Just as buying gold is considered auspicious on all important occasions, the yellow metal can come in handy during a cash crunch. Several banks and non-banking finance companies (NBFCs) offer loans against gold. While banks offer loans against gold ornaments, NBFCs lend against coins and bars as well. So here is a complete lowdown on how to go about getting that gold loan in case of an emergency.

Why is it a good loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower’s salary, profession and the purpose for which the loan is being taken.

For instance, the interest rate on a personal loan of Rs 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.

"Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loans come at a lower cost than other forms of personal loans," says Biju Pillai, executive vice-president and business head, PL, gold loans, LAS & home loans, HDFC Bank .

Also, within the gamut of secured loans, a loan against gold has its own advantages. "You get higher loans against your gold compared to loans against securities," says Pankaj Mathpal, certified financial planner, managing director, Optima Money Managers.
"For loans against securities, you can borrow only up to 50% of the value of your shares or your equity mutual funds. A loan against property is a good option only if you need a big amount. Otherwise, it doesn’t make financial sense to mortgage your property for short-term liquidity needs," he adds.

So, if the value of your shares is Rs 1 lakh, you are likely to get a loan of only up to Rs 50,000 against them. In case of gold loans, this proportion is greater.