Core Insights - Gold loans are emerging as a preferred emergency credit option in India due to their quick disbursal, lenient terms, and relatively low interest rates compared to personal loans and credit cards [3][21] - The outstanding gold loans have surged 122% year-on-year, reaching Rs 2.94 lakh crore by September 2025, indicating a significant growth in this sector [4][21] - Gold loan interest rates in India range from 8.75% to 22% per annum, which is considerably lower than personal loans (10-25%) and credit cards (36-40%) [5][21] Growth and Market Dynamics - The rise in gold prices over the past few years has enhanced the borrowing potential for individuals using gold as collateral [2][21] - Gold loans are processed quickly, often within hours, making them a viable option for urgent financial needs compared to personal loans that can take 2-7 days [10][22] - The market for gold loans is expanding as borrowers increasingly recognize the cost savings associated with secured loans compared to unsecured credit options [8][21] Borrower Profile and Loan Features - Gold loans are accessible to a wide range of borrowers, including those with poor credit histories, as the gold itself serves as collateral [11][22] - These loans are particularly suitable for short-term liquidity needs, with tenures ranging from 3 to 36 months, and can be used for various expenses such as weddings or minor renovations [13][22] - The documentation process for gold loans is minimal, typically requiring only identity proof and ownership proof of the gold, making it easier for borrowers to access funds [14][22] Cost Considerations and Fees - While gold loans offer lower interest rates, borrowers should be aware of additional costs such as processing fees (up to 5% of the loan) and late payment charges that can increase the overall cost of borrowing [15][22] - The Loan-to-Value (LTV) ratio for gold loans is capped at 75% by the RBI for loans above Rs 5 lakh, but new customers may receive only 60-65% from lenders [17][22] - Understanding the type of interest rate (fixed vs. floating) is crucial for borrowers, as floating rates may change with market conditions [18][22] Current Market Rates - Current gold loan interest rates from major banks include: - State Bank of India: 8.75% p.a. onwards - Bank of Maharashtra: 8.75% p.a. onwards - HDFC Bank: 9.30% p.a. - 17.86% p.a. - Punjab National Bank: Contact the Bank for rates [19][22]
Save big by pledging gold in your locker: When gold loans beat personal loans and credit cards
The Economic Timesยท2025-10-31 05:00