Gold Loan Impact: For some time now, there has been a boom in the gold loan market in India. But it is also important to pay attention to this side if the price of gold decreases in the future, will it be the right decision to take a gold loan?

Buying gold in India is linked to tradition. For generations, Indians have been investing in gold and use it when needed. Many people or small businesses take loans against gold to meet their immediate needs.

For some time now, there has been a boom in the gold loan market of India. But it is also important to pay attention to this side that if the price of gold decreases in the future, will it be a right decision to take a gold loan?

Increase in gold loan

Many NBFCs and banking institutions like Muthoot Finance have increased gold loans. According to PVC's Striking Gold The Rise of India's Gold Loan Market report, the rising price of gold has led to an increase in gold loans to meet the financial crisis and the need of small businesses.

It is being said that the gold market of Rs 7.1 lakh crore in the year 2023-24 will double to Rs 14.19 lakh crore by the year 2028-29.

There is a race to take gold loan

Muthoot Finance MD George Alexander Muthoot says that the number of customers taking gold has increased in the last few quarters. In the last few quarters itself, more than 13 lakh new customers have taken gold loan. There are many reasons behind this, such as its EMI is easy compared to personal loan or other loans, it gets processed quickly and there is no long term liability.

Gold prices are volatile

Financial experts say that gold loan can also be risky because gold prices are more stable. Gold prices depend on currency situation, geopolitical tensions, decisions taken by the central bank and interest rates.

Impact of gold loan on customers when gold prices fall

If gold prices fall, it can lead to a higher loan to value ratio. Due to this, customers taking loans may face difficulty in repaying it. Although this option provides liquidity, market corrections can increase the risk.

Many NBFCs and banks also charge heavy interest on gold loans, due to which loan takers may face financial problems. There was a surge in the price of gold in the year 2011, but after that the prices fell rapidly.

Why do Indians prefer to take gold loans?

According to the report of the World Gold Council, Indian families have about 25000 tonnes of gold. Which can be worth about Rs 126 lakh crore. Indians prefer to invest in gold.

Taking a gold loan instead of selling gold is also considered more correct, because there can be a loss of 20 to 25 percent due to making charges and GST on selling gold. Apart from this, short term or long term capital gain also applies.

Taking a gold loan can be a wise decision for you. If you pay attention to your financial situation and requirements before taking a loan.

Before taking a gold loan, you should pay attention to some things-

· Taking a gold loan is easier and faster than other loans, it does not require a credit score check and documentation is also less.

· Its interest rates are also lower than other unsecured category loans. It can be taken for any reason like education, business, medical etc.

· If you do not repay the gold loan on time, it will not affect your credit score but the loan mortgaged by you can be auctioned by the bank or individual institutions.

· Before taking a gold loan, you should compare the interest rates charged by other banks and financial institutions. Many financial institutions may charge hidden fees like processing fees etc. So get all the information beforehand.

· How much loan you will get depends on the quality and weight of your gold.

When will taking a gold loan prove to be a wise decision?

When you need money suddenly, your credit score is not good, you want to take a loan at a low interest rate, etc. If you have other options than a gold loan, then you should avoid taking a gold loan. Also, if you are not able to repay the gold loan on time, then you should not take this loan.

Gold loan should be taken only as per requirement. Choose the right lender and plan in advance to manage the price fluctuations.