From last few years gold loan is becoming very popular. Both the parties of the transaction, money lender or money borrower, both of them are happy with it. It is process of borrowing money by keeping your goal as security with the money lender. A gold loan is a loan in which you borrow money form a money lender keeping your gold ornaments or raw gold as mortgage. This loan is fully secured as equal amount of gold is kept as security. The advantage of taking gold is it can be easily converted into money whenever required. It is very easy for the money lender to sell gold and recover his money if the money borrower becomes bankrupt or the loan turns as a bad debt and there are no chances of repayment. In such case, the money lender can easily sell the gold to recover the loan amount.
Gold can be easily converted into cash, hence it is equivalent to cash, whereas other mortgage like land, property or vehicles can’t be quickly converted into cash to recover the loan amount, hence it is becoming very common these days and preferred by the money lenders. You give a physical security of gold hence it is fully secured loan.
The money borrowers are also happy because the main thing matters for them is price they are paying for the loan, the interest rate that is being charged on the loan. The borrowers pay lesser rate of interest on gold loan as compared to other personal loans. The simple concept of finance is, more the risk, more will be the interest rate charged. As in most of the cases, personal loans are either unsecured or partially secured, due to which they are more risky and as gold loans are fully secured by equal or more amount of gold, as it is less risky the rate charged on it is lesser as compared to personal loan.
Other benefit provided in gold loan is, if you provide some extra collateral, means any other security other than gold, for example you are keeping the gold as well as your car as collateral then the interest rate will come down because it will be less risky.
Interest rate charged on gold loan varies from place to place, with duration of loan, changes with the amount of loan, but at an average gold loan rate in Delhi NCR region is 12% to 15%
Hence gold loan is becoming very common these days and accepting gold as collateral is becoming very popular.