Gold has always held cultural and financial significance in India. With households owning over 25,000 tonnes of gold, gold loans have emerged as one of the fastest-growing lending products. But are they a smart borrowing option or a potential debt trap?
Why Gold Loans Are Rising in India
- Quick Disbursal: Instant loans against gold jewelry with minimal paperwork.
- Flexible Loan Amounts: Loan-to-value ratio up to 75% of gold’s market price.
- Rising Gold Prices: Higher valuations increase loan eligibility.
Benefits of Gold Loans
- Collateral-Based Security: Lower interest rates compared to personal loans.
- No Credit History Required: Even people with poor credit scores can access loans.
- Quick Liquidity: Funds available in emergencies.
Risks of Gold Loans
- Possibility of Asset Loss: Defaulting means losing pledged gold.
- High-Interest Rates from NBFCs: Some lenders charge 20%+.
- Short Tenures: Usually 6–12 months, which may strain borrowers.
Gold Loans vs. Personal Loans
- Gold loans are cheaper but involve collateral.
- Personal loans don’t risk your assets but may have higher interest.
Conclusion:
Gold loans can be a smart borrowing tool for emergencies if used responsibly. However, over-reliance without repayment planning can turn them into a debt trap.
