I’ve always wondered gold loan companies give loans against gold, which seems safe for them. But how exactly do they make profit from it? What’s their business model?
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Gold loan companies make money in the following ways-
1.) Interest Income- The main source of income is the interest you pay on the loan. They charge anywhere between 8% to 25% per year, depending on the lender, loan amount, and customer profile.
2.) Processing and renewal fees – Many gold loan companies charge a small processing fee when you take the loan and again when you renew it. This adds to their revenue.
3.) Cross-Selling Financial Products- Some gold loan providers also offer additional financial products or services, such as insurance, savings accounts, or investment options, which can create additional revenue streams.
4.) Short loan tenures- Gold loans are usually short-term (3 to 12 months), so companies get their money back quickly and can re-lend it to others, earning interest multiple times in a year.
Yeah, gold loan companies make money mainly through interest. They lend you money against your gold and charge rates like 10 to 24 percent per year. That’s their biggest profit.
They also collect small processing fees, and if you don’t repay, they can auction the gold. Since they usually give only 75 to 90 percent of the gold’s value, they’re well protected even if prices dip a bit.
Plus, most gold loans are short term, so they keep flipping their money fast and earn interest multiple times a year.
It’s a low risk, high return model and that’s why it works so well for them.