Millennials are the generation who are known for being tech-savvy and financially conscious. Millennials, like many other generations, need access to credit to fund their dreams and aspirations, whether it’s starting a business, buying a home or funding their education. However, a new trend seems to be emerging where millennials prefer gold loans over personal loans. Gold loans are secured loans where the borrower pledges their gold ornaments as collateral and in return receives a loan against the value of the gold.
There are several reasons why millennials prefer gold loan
- Firstly, rising gold prices provide an additional opportunity for borrowers, where they can extract greater value from the gold, and hence a greater amount of loan given that the loan value is pegged to the overall value of gold ornaments. Progressive lending organisations provide opportunities proactively to borrowers in case they would need to enhance the loan amount against the gold ornaments pledged. Smart borrowers can use this effectively to use the enhanced limit, though also need to be aware of the enhanced demands this can place on repayment and interest.
- Gold loans offer several advantages over personal loans. The biggest advantage is that they are secured loans, which means that the borrower has to pledge collateral, in this case, gold ornaments, which significantly reduces the lender’s risk. As a result, lenders are more willing to provide loans to borrowers with lower credit scores or no credit history, something that is particularly relevant for millennials who are just starting out and may not have a significant credit history.
- Another advantage of gold loans is that they offer more flexibility in terms of loan amounts, interest rates and repayment periods. Since the loan amount is pegged to the value of the gold pledged, borrowers can get a higher loan amount with a gold loan compared to a personal loan, which is typically unsecured. However, borrowers should be cognizant of the additional demands placed to service the interest and repayments on the increased loan amounts. The increase in interest payment is particularly relevant as there is a trend of increasing interest rates, and this would in any case lead to higher interest payments.
- Finally, gold loans are also more easily accessible, with many lending institutions offering online platforms for easy application and disbursement of the loan amount. This is particularly important for millennials who are used to accessing services online and expect a seamless, digital experience.
In conclusion, while personal loans remain a popular option for many borrowers, gold loans are increasingly becoming a preferred option for millennials due to their flexibility, accessibility and lower credit requirements. However, borrowers should weigh the benefits and risks of both types of loans before making a decision and should be aware of the additional demands placed on repayment and interest for higher loan amounts.
Views expressed by Partha Sengupta, CBO-Radian Finserv.
