Is taking a personal loan for gold worth it? Pros and cons you must consider

For a long time, gold has been a common investment for people in India as it not only is a financial investment but also resonates religious and emotional sentiments. With rising gold rates, financing gold can become tough. Hence, people often resort to borrowing personal loans to buy gold. Let us understand the benefits and considerations of using a personal loan for buying gold in detail so that you can make the right choice.

Personal loans for gold purchases

Personal loans are unsecured loans that allow you to use the fund for any purpose including the purchase of gold. These loans are different from gold loans as you don’t have to pledge gold as collateral for them. That means you can get the loan without any threat of losing your existing gold assets.

Key advantages of personal loan for gold purchases

Collateral: Personal loans are unsecured and do not require collateral. Therefore, you can easily apply if you do not own any high net worth assets.

Repayment tenures: Lenders offer you flexible repaying tenures so that you can repay the loan in a way that suits your financial plan.

Approval and disbursal: These loans are approved and disbursed immediately. Thus, during festive occasions like Dhanteras, you can get quick access to the funds and buy gold.

Principal amount: Usually, personal loans provide larger principal amounts. Hence, you can make high amount purchases conveniently.

Credit score: Timely payments of the personal loan can help you build a strong credit score and in turn can help you in getting better loan deals in future.

Should you take a personal loan to buy gold?

While opting for a personal loan to buy gold depends on your requirements. However, before you make a decision, you can consider these factors so that you can make an informed decision which aligns with your budget and prevents you from landing into a debt trap.

Gold market volatility: This market is highly volatile and has unpredictable price changes. The loan may become difficult to repay if gold prices fall sharply.

Interest rates: Personal loans usually involve high interest rates as compared to secured loans. Hence, you must evaluate the amount of profits you make from the appreciation of gold’s value with the cost of your loan in order to make the right decision.

Impact on credit score: Lenders assess your credit score and repayment history while approving your loan application. A good credit score increases the chances of loan approval and helps you get lower interest rates.

Financial stability: Make sure you have a stable financial plan to pay back the loan even if you do not see the gold prices appreciating as you expected.

Ajay Lakhotia, Founder and CEO, StockGro, says “Taking a personal loan to buy gold, especially when prices are at record highs, carries significant risk. Gold is traditionally seen as a safe investment during uncertain times, but its current price rally (driven by trade tensions and strong central bank demand) might not last.”

“While the recent cuts in customs duties aim to boost gold sales, this doesn’t guarantee future price rise. Using borrowed money for such an investment can be unwise, as loan repayments could become burdensome if & when value corrects. It’s generally better to use loans only for investments with a higher chance of profit from resale or value appreciation” he added.

In conclusion, taking a personal loan to buy gold can be an option if you have planned your finances in advance. Make sure that you evaluate your repayment capacity and borrow only what you can afford and repay easily in order to avoid any future debt.

(Note: Raising a loan comes with its own risks. So, due caution is advised)