Indians are well-known for the sentimental value they attach to holding gold and buying jewellery during festivities, weddings and other celebrations. According to a study conducted by the World Gold Council (WGC), approximately 18,000 tonnes of gold is hoarded as household stocks. Since gold is highly regarded in traditional households, it is also a go-to tool during a financial crunch. Typically, most people tend to opt for a gold loan under the impression that they can regain their jewellery after repaying the loan amount. However, gold loans come with a cost.
While looking at it statistically from a perspective of returns and interest rates, jewellery stores offer gold saving schemes with returns up to 8 per cent only. SIPs offer an average of 10-12 per cent returns, short-term FDs approximately 3-8 per cent of returns and, to top it all, gold loan interest rates range anywhere from 10 per cent to 30 per cent, including late payment fees!
According to the RBI, a maximum of only 75 per cent of the gold value (loan-to-value) should be offered to the customer as a loan. In fact some banks offer an LTV of only 65 per cent. This means the customer can get liquidity only for 65 to 75 per cent of his gold value. The remaining will still be unrealised.
Contrary to the traditional belief, one should seriously consider the new option of selling gold, instead. Other than the various advantages it offers, it is also a quick and reliable fix to get through tough times.
Faster transaction: A lot of banks and financial institutions dealing in gold loans cannot promise instant funds and take a considerable amount of time with underlying paperwork and other formalities. Nonetheless, selling gold can be comparatively easier. An organised gold-buying service assures immediate liquidity, and unlocks your gold value in a matter of only 30 minutes.
Greater liquidity: This means selling gold will get you more in your hand at the time of your need. Typically, gold loans range between 65 per cent and 75 per cent of the gold value. Which means 25-30 per cent of the gold value is still held as collateral. This means you get less by pledging your gold. However, if you choose to sell your gold, you will get liquidity for almost 100 per cent of your gold’s value. Which simply put means more money in your hand when you need it.
No high interest: Even though many companies offer gold loans at enticing interest rates they are all filled with Terms and Conditions. One small delay in payment could result in the customer paying up to 30 per cent in interest on the loan he has taken. This constant pressure can be completely avoided if they just choose to sell instead. No interest pressure and no constant collection calls.
Miscellaneous taxes and charges: Banks usually charge a processing fee while issuing a gold loan. These charges can go up or down, depending on the market conditions. A processing fee of 0.8 to 2.5 per cent is usually charged by the banks along with a pre-closure fee if loan is repaid within three months of its creation. Comparatively, if you’re selling your gold, you’re usually charged a flat service fee of 3 per cent to 5 per cent without any additional charges.
Additionally, repaying a gold loan can be tough, given that most schemes promote the payment of interest monthly and the principal as a lump sum at the end. Although this may seem convenient at first, it gets very difficult for most consumers to gather the amount together to repay the large principal.
For all the above reasons and more, selling your gold is actually a much more convenient option than opting for a gold loan. Times are changing and so are people’s beliefs. Today, more and more people are looking at their gold holdings just like any other asset that they own.
External factors such as market conditions, gold prices and volatility are often taken into account while selling your gold, therefore it is always advisable to deal with an organised gold-selling service. Reliability of the service, verified customer reviews and transparency are a few things one should look for while selling their gold to a third party.
Finding instant liquidity in case of an emergency or saving for an important life event might not be an easy feat. However,selling your unused gold jewellery might be a starting point.
The author is Founder and Director of White Gold