Precious metals like gold and silver have been used as collateral for loans for centuries. In recent years, as the prices of gold and silver have increased significantly, precious metal-backed lending services have become an attractive option for consumers looking to access funds while avoiding the need to sell their metal holdings.
This comprehensive guide will examine how precious metal collateral loans work, the benefits and risks of using your gold or silver as loan collateral, and provide tips for finding the best precious metal lending services.
How Does a Precious Metal Collateral Loan Work?
A precious metal collateral loan allows you to access cash while using your gold or silver as collateral. Here is a step-by-step overview of the precious metal lending process:
1. Determine Your Metal’s Value
The first step is to determine the current market value of your gold or silver. Precious metal lenders will require your metal to be evaluated and certified by a credible third-party grader. The evaluation process may involve assaying, weighing, and authenticating your metal. This provides an accurate valuation that the lender can use to determine the loan amount.
2. Apply for the Loan
Once you have a certified valuation, you can apply for a precious metal collateral loan. Most lenders have an online application process where you will provide information about the type, weight and value of your metal. You may also need to provide personal information such as employment status, income, and credit score.
3. Loan Terms Are Determined
If approved, the lender will provide the loan terms including the loan amount, interest rate, loan-to-value ratio, and repayment schedule. The loan amount is typically based on a percentage of your metal’s market value. Common loan-to-value ratios range from 50% to 80%.
4. Metal is Stored with the Lender
Once you accept the loan terms, you will ship your metal to the lending institution where it will be stored in a secure facility for the duration of the loan. Precious metal collateral loans require your metal to be stored with the lender as security until the loan is paid off.
5. Receive the Loan Proceeds
After the lender receives and verifies your metal, they will deposit the loan proceeds into your bank account, usually within 24-48 hours. Now you have access to cash and can use the funds for any purpose while keeping ownership of your metal.
6. Make Scheduled Loan Payments
You will make regular principal and interest payments according to the repayment schedule. Interest rates and terms for precious metals loans vary but often range from 3-12 months. If payments are late, higher fees may be incurred.
7. Metal is Returned Upon Repayment
Once you have fully repaid the loan, the lender will return your gold or silver to you. You get your metal back while the lender earns interest on the loan. It’s a win-win scenario.
Benefits of Precious Metal Collateral Loans
Using your gold or silver holdings as collateral for a cash loan provides several unique benefits:
- Access cash without selling metal: The key advantage is you can access funds from your metal without having to liquidate your holdings. You avoid capital gains taxes and keep your future options open.
- Competitive interest rates: Interest rates may be lower compared to unsecured loans or pawning. Average APRs for gold loans range from 5-20% depending on loan terms.
- Maintain ownership: You keep legal title to your metal. The lender holds it as collateral during the loan but you remain the owner.
- Metal value may appreciate: If gold or silver prices rise during your loan, the increasing value further secures your collateral. Higher metal values allow you to potentially borrow more in the future against the same holdings.
- Flexible spending: There are no restrictions on how you can use the loan proceeds. Use the cash for debt consolidation, business investment, education, or any other major expense.
- Quick access to funds: Loan processing is faster than traditional bank lending. You can access funds in as little as one business day.
- Credit history not a barrier: Precious metal lending relies on the value of your collateral. Your FICO score and credit reports are generally not a factor for approval.
Risks and Drawbacks of Metal-Backed Lending
While precious metal collateral loans provide unique advantages, there are also some risks to consider:
- Metal is inaccessible during loan: You will not have access to or be able to sell your gold and silver while pledged as collateral. Make sure you are comfortable parting with it for the loan duration.
- Must be repaid to reclaim metal: Failure to repay the loan according to the terms will result in forfeiture of your metal to the lender. The lender can then sell the metal to recoup their funds.
- Interest payments add up: While rates may be low, interest still accrues. Paying loans off earlier saves on interest expenses. Take out only what you need.
- Tax implications if metal is forfeited: If you end up surrendering metal to settle a defaulted loan, it is treated as a sale by the IRS and capital gains taxes apply.
- Storage and insurance costs: You may have to pay allocated storage and insurance fees to protect the value of collateral stored with the lender. Factor this into the total loan costs.
- Recourse vs non-recourse loans: Some precious metal loans are recourse meaning the lender can pursue other assets or income if you default beyond the collateral. Non-recourse limits exposure to just the pledged metal.
- Fluctuating metal values: While rising prices help collateral value, declines can trigger margin calls requiring additional collateral or early loan repayment. Falling gold/silver prices introduce risk.
Tips for Finding the Best Precious Metal Lending Services
If you are considering using your gold or silver holdings as collateral for a loan, follow these tips to make sure you get the best lending experience and terms:
- Compare interest rates and fees: Rates and loan costs can vary significantly between lenders. Compare total borrowing costs. Watch for storage, shipping, and insurance fees.
- Verify licensing and reputation: Only work with established lenders that are appropriately licensed for lending activities. Check their BBB rating and online reviews.
- Review loan terms carefully: Read the fine print to understand repayment schedules, loan-to-value ratios, interest calculations, and recourse policies in case of default.
- Ask about storage and security: Make sure your collateral metal will be stored at a recognized depository or vault with proper security protocols and insurance.
- Understand tax implications: Consult a tax professional to determine any potential tax obligations if your metal is liquidated by the lender to repay the loan.
- Compare buyback offers: Some lenders will make offers to purchase back your gold/silver at the end of the loan. This provides an exit option if metal prices rise.
- Examine early repayment options: Many lenders allow early repayment so choose a lender that gives you flexibility to repay the loan quicker when possible.
- Check payout timelines: To access funds faster, look for lenders that can evaluate collateral, approve loans, and transmit proceeds to your account within 24-48 hours.
Top Precious Metal Lending Companies
If you are considering using your gold or silver as collateral for a loan, here are some of the top national precious metal lending companies to consider:
LendBorrowTrust offers loans from $25,000 to $10 million backed by gold and silver bullion. Interest rates start at 5.25% and competitive storage/insurance rates. Offers 72 hour turnaround from completed application to funding. Has non-recourse loans available.
Nexo provides custodial services and financing to individual and institutional clients using blockchain assets and commodities like precious metals. Loans from $500 to $2 million. Interest rates as low as 4.9% and no credit checks required.
A well-established precious metals dealer, GoldSilver offers collateralized lending services for physical gold and silver purchased through their dealership. Maximum LTV is 70%. Interest rates as low as 1% are offered based on loan amount.
White Tower Funding
White Tower Funding focuses on larger commercial precious metal loans over $1 million. Typical LTV is 65-80% and interest rates from 3% to 7% depending on amount borrowed. Handles own storage and transportation.
New Direction IRA
New Direction IRA specializes in financing against precious metals in self-directed IRAs. Enables using IRA gold/silver to fund a business or other expenses without taxes/penalties. Interest rates around 7%.
Asset Strategies International (ASI)
ASI offers collateralized loans against precious metals with 8 business day turnaround from completed paperwork to funding. $50,000 minimum loan amount, up to 60% LTV, and interest rates as low as 4.25%.
Glint provides gold-backed lines of credit from £2,000 to £15,000 to UK residents. Applicants are approved in minutes. Interest rates are between 4.5% and 14% for a maximum of 12 month terms. Minimal paperwork required.
Precious metal collateral loans can be an attractive financing option that allows you to access liquidity from your gold or silver without having to sell your holdings. By pledging your precious metals as collateral, you can obtain financing at competitive rates compared to other lending products. However, you take on risks such as market price fluctuations and the loss of access to your metal during the loan. Finding an established lender with fair loan terms and secure storage facilities helps minimize the risks. Used strategically and repaid on schedule, a gold or silver collateral loan enables you to unlock value from your bullion assets.
Frequently Asked Questions
How does collateral loan work?
Collateral loans involve pledging an asset to secure financing from a lender. With precious metal collateral loans, you provide gold or silver bullion to the lending institution as security for the cash loan. Your metal is stored with the lender during the loan but ownership remains with you unless the loan defaults.
What is the collateral for gold loan?
The collateral, or security, for a gold loan is physical gold bullion. To get a gold collateral loan, you deliver gold coins, bars, or rounds to the lending institution where they assess and store the gold while loaning cash against the current gold market value. The gold collateral remains with the lender until repaid.
How much money can I borrow against my gold?
The amount you can borrow against your gold depends on the weight, purity, and type of gold you provide as collateral as well as current gold spot prices. Lenders typically will loan 50% to 80% of the appraised gold value. With an 80% loan-to-value ratio, 100 ounces of gold appraised at $1,400 per ounce could qualify for around a $112,000 loan.
What is the interest rate on gold loans?
Interest rates on gold collateral loans often range between 4% and 20%, depending on the lender, loan amount, and loan terms. Average APRs are around 9-12%. Factors like the loan-to-value ratio, repayment term, and overall creditworthiness also impact the specific interest rate offered.
How long does it take to get a gold loan?
With established precious metal lenders, gold loan processing and funding can be completed in as little as 1-3 business days from submitting a full application. The lender must receive, evaluate, and certify the collateral gold before releasing funds to the borrower’s bank account, often via wire transfer for fastest access.
Do you need good credit for a gold loan?
Gold loans depend primarily on having sufficient gold bullion to serve as collateral rather than your credit score or reports. Qualifying for a gold loan has more to do with the weight and purity of your pledged gold than your creditworthiness. Good credit may help secure lower interest rates however.
Where is the gold stored during a collateral loan?
Reputable precious metal lenders will store your collateral gold in secure, insured vaults and depositories for the duration of the loan. Major commercial gold lending institutions often have their own storage facilities that meet industry security and insurance standards to protect collateral assets.
Can you get a gold loan without selling?
Yes, gold collateral loans allow you to access a cash loan against your gold without needing to liquidate or sell your gold bullion. You get to keep ownership of your metal while using it as collateral for financing. Avoiding a sale allows you to maintain your gold holdings for the future.
How do I get my gold back after repaying the loan?
Once you repay the gold loan completely according to the repayment terms, the lender is obligated to return your pledged gold bullion back to your possession. Many lenders cover insured shipping costs to return your collateral metal once the loan obligation is satisfied.
In another related article, Precious Metal Individual Retirement Accounts (IRAs)