Money is in shortage. But this is a problem most of your fellow citizens, if not the whole World faces. This is when you remember your family gold jewelry. You can pledge it for a gold loan. After all what are loans for?
So what is a gold loan?
If you have gold jewelry, you can pledge it with a gold loan Company and get cash in return. You can use this money to meet your immediate needs, or cater to a medical, or any other emergency.
Remember: You can pledge only gold jewelry or gold ornaments with a gold loan Company.
Gold loan Companies have been doing well for a number of years. Borrowers flocked to gold Companies for loans. However of late, gold Companies are a worried lot. Their business is down.
Why are gold loan Companies worried?
Gold prices have crashed in recent times. This is worrying gold loan Companies. Gold prices have crashed from INR 29,000 per 10 grams in January 2013, to INR 23,000 in November 2015. If the global price of gold crashes and the rupee appreciates (gains) against the dollar, then gold Companies will be in serious trouble. Fortunately for gold Companies, the chance of this happening is pretty low.
But gold Companies have gold jewelry as collateral?
Gold Companies lend only against gold jewelry and ornaments. Ancestral gold ornaments have emotional value. More than 90% of customers of the gold loan Companies, are known to redeem their loans, as the gold ornaments have emotional value. This was going well for gold loan Companies for a number of years. But recently gold loan Companies are facing a new problem.
Gold loan Companies are now getting younger customers. The younger generation is not too sentimental about redeeming family gold. If gold prices crash, they will not redeem the gold loan and abandon it.
Yes… The younger generation is not too bothered to repay their gold loan. This new category of gold loan customers is growing steadily. Their numbers are increasing by 2-3% each year.
So why is the younger generation not bothered to repay their gold loan?
The younger generation does not care to invest and blows up money, on status symbols. Bikes, Laptops, Smart phones, latest fashionable clothes and designer jewelry.This is what the younger generation wants.
Households in India used to invest in real estate and gold. The prices of real estate and gold increase with time. The younger generation does not aspire to own things. It aspires to use things. This is one of the reasons for the growth of the cab services, which use apps in India. Gone are the days when owning a car was something great. Owning a car is now passe. The younger generation will use app based cab services, instead of buying a car.
Why is this bad….
Today the younger generation, spends money on electronic items such as smart phones and laptops. Their value decreases with time, unlike gold and real estate, whose price increases with time.
How can gold loan Companies solve this problem?
Gold loan Companies need to understand, why customers do not repay their gold loans. Gold loans are short tenure loans. Customers have to repay the borrowed amount with interest, at the end of the tenure of the gold loan. If gold prices crash, then customers do not repay the gold loan. They may abandon the pledged gold jewelry, even though it has emotional value.
To solve this problem, gold loan Companies give customer’s money, only up to 75% of the value of the gold jewelry, called LTV (Loan to Value) ratio. However if customers avail gold loans for a tenure of a year or more, gold loan companies give money only up to 60% of the value of the gold. This is to protect themselves from a crash in gold prices.
Most of the loans you avail such as personal loan, car loan and home loan, ask for repayments in EMIs. Now gold loan Companies, will soon ask customers to pay back their gold loans in EMIs. EMIs are charged on a monthly basis and customers would have to make regular repayments. Gold loan Companies are also diversifying their business and moving into home loans, commercial vehicle loans and loans against property.
These measures are expected to protect Gold loan Companies, till gold prices rise again.
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