Is it better to sell your gold jewellery or borrow by pledging it?
Dubai: If you are in a desperate need of cash, then gold jewellery is a financial lifeline. But sell your gold or sell your gold as collateral on a loan? While selling gold can be an immediate cash solution, if you can pledge your gold for a loan it could be more lucrative and less permanent in times of gold price spike.
In a gold loan, your gold becomes a security for a loan and the value of the loan is based on the purity and weight of the gold (Lenders generally take gold between the purity levels of 18-24 carats). Loans are usually at 75-80% of the market price of the gold being pledged.
So for example, if you have Dh20,000 worth of gold, it’s around Dh15,000. Gold loans are low in interest rates as compared to other types of loans and flexible in their repayment periods (6 to 48 months). When you pay back, the gold is given back to you.
Benefits, downsides to gold borrowings
Gold loans are quick to approve and so they are a great solution for emergency funds. They’re not limited to any usage, which gives them more latitude compared to other secured loans. Low interest rates and the freedom to keep your gold are their enticements.
But gold loans are not shabby. Loan size and interest rates can vary with gold prices. Not only that, but lenders can have high processing costs, and they don’t lend much gold—anything above 50 grams, or less than 18 carats of gold, will not be accepted.
Failure to make payments can send your gold back, all for good. So gold loans are a good investment for short term cash-flow issues and not for major expenditures such as property purchases.
Should you exchange your gold for a pledge?
You can sell gold to receive quick liquidity but the downside is that you are losing valuable assets for good, often for a far less price than what it is likely to return. By selling gold you get access to funds and you get to keep the gold so if the gold price rises in the future you can receive the price rise.
A gold loan is a risk-free and effective solution to emergency funding if you’re capable of making the repayments. They are also quite useful when gold is in the upswing, letting you lend more money. But you’ll need to shop around for lenders and conditions to get the cheapest loan possible.
If you own jewellery and have a sentimental value or would like to keep it, pledging gold as a loan is usually a more affordable option than disposing of it. But as with any loan, be sure to read all the fine print and risks thoroughly before you sign.
Verdict?
So in short, borrowing your gold is a simple way to pay for urgent expenses and save your gold, as long as you take it well and thoughtfully.
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