Gold & Silver Loans: How You Can Borrow Against Your Precious Metals
Gold and silver have long been among the most trusted assets to protect against inflation and monetary debasement. Often kept in a home safe, safe deposit box, or private vault, physical precious metals are often thought to offer only capital appreciation, albeit with storage costs.
Given their highly liquid and trustworthy nature, gold and silver loans have emerged, allowing precious metal owners to benefit from leveraging them to unlock funds to meet other financial needs.
Silver Bullion has offered gold and silver bullion loans since 2015. Our loan platform has matched more than 19,000 precious metal loans worth over USD $600 million. In this article, we share our thoughts on silver and gold loans based on our experience operating a precious metal loan program.
What Is a Gold or Silver Loan
A silver or gold loan is a secured loan that uses the borrower’s silver or gold as collateral. Usually, the collateralized precious metals are bullion, like gold coins, bars, or gold jewelry.
If you own physical gold or silver, borrowing against your precious metals allows you to unlock funds from your assets without selling them to raise cash. As with commercial loans, the lender is incentivized to lend you cash for the loan’s duration for an interest return. You can take up the loan if the loan tenure and interest are reasonable.
Your silver and gold bullion is returned upon full loan repayment of the principal and interest.
Silver and gold loans can be useful for raising funds for investment, home renovation, children’s tuition, or any other emergency use. Best of all, you are not selling your precious metals but leveraging them through a precious metal loan.
How Do Gold & Silver Loans Work
Gold and silver loans are simple – you use your precious metals as collateral in exchange for a lender’s funds.
Here are the details and processes of how silver and gold loans work.
Providing Your Personal Information
As with commercial loans, you are required to undergo a registration process to provide your personal and contact information. As a loan contract is legally binding, information of both the lenders and borrowers must be known to the loan provider.
The loan provider may conduct a Know Your Customer (KYC) background check to verify your identity as part of its compliance with anti-money laundering (AML) regulations to limit fraud.
Once you have cleared the KYC check, the loan provider is confident to accept your precious metal collateral for a gold and silver loan.
Ensuring That Your Gold and Silver Are Genuine
Before lenders are confident to lend funds to you on account of your precious metal collateral, they need to know if your gold or silver is real. It is unthinkable if a disbursed loan is collateralized by fake gold or silver.
The loan provider may require you to deliver your physical silver or gold to be tested before you apply for a silver or gold loan. Authentication of your silver or gold bars and coins is usually conducted using non-destructive precious metal testing methods such as X-ray Fluorescence (XRF), ultrasound, density, and electrical conductivity tests.
Once your precious metals are authenticated, they can be accepted as collateral for a gold or silver loan.
Storing Your Precious Metals For the Loan Duration
Once tested to be genuine, your precious metals will be stored in the loan provider’s vault. You cannot withdraw your physical silver and gold from the vault while the loan is active.
Depending on the loan provider, you may be charged a storage fee for the loan’s duration.
It is important to check with the loan provider about how your precious metals will be stored to ensure their safety. Here are some things you should ask:
- What is the name and address of the vault?
- What are the vault’s security measures?
- Are your precious metals fully insured, and who is the insurer?
- How are your precious metals identified from other customers’ assets?
- What happens if the loan provider goes bankrupt?
While you intend to obtain a silver or gold loan, it is also important to understand how your precious metals are stored and the potential risks involved in the loan process.
Valuing Your Precious Metal Loan Collateral
With your gold and silver bullion safely stored in a vault, the next step will be to value your precious metal collateral.
Loan providers usually reference international silver and gold spot prices to determine the value of your precious metal collateral. Based on the loan provider’s loan-to-value ratio (LtV), you may be offered between 50% to 80% of the value of your precious metals.
The loan-to-value ratio may differ depending on the metal type, with silver likely to have a lower LtV than gold due to the greater volatility of silver prices.
While a high LtV like 80% may seem beneficial as it allows you to borrow more against your precious metals, the flip side is the higher likelihood of a margin call should the collateral value decline due to falling precious metal prices.
A margin call aims to return a loan to an acceptable LtV ratio. Once contacted about a margin call, borrowers must support their loans with additional collateral or cash capital to keep the loans active.
Depending on the loan agreement, if no action is taken on a margin call, the loan may be closed, and the borrower is notified of repayment.
Reviewing Precious Metal Loan Details
Similar to commercial loans, silver and gold loans have a tenure and interest rate. It is also important to review other loan details, such as repayment terms, miscellaneous fees, early repayment options, valuation terms, ability for loan rollover, and potential margin calls.
Once you have scrutinized these details, you can obtain your first gold and silver loan with greater confidence.
Pros and Cons of a Silver or Gold Loan
Like any other loans in the market, silver and gold loans have pros and cons. Understanding the benefits and disadvantages of precious metal loans before committing to one is important.
Pros of a Silver or Gold Loan
- Borrowers can access cash liquidity quickly without selling their precious metals.
- Secured loans often have lower interest rates than unsecured loans.
- Credit history checks are not required as the collateral is gold or silver, which is highly liquid.
- Loan proceeds can be used to buy more bullion should spot prices be attractive without using fresh funds.
- Loan proceeds can be used toward higher-yielding investment opportunities.
Cons of a Silver or Gold Loan
- The borrower’s loan collateral is stored in a third-party vault and cannot be accessed while the loan is active.
- Collateral value fluctuates with silver and gold spot prices and may trigger margin calls should prices decline too much.
- Market conditions may increase interest rates, causing higher repayments or loan rollover difficulties.
- Failure to repay the loan may result in selling part or all of the precious metal collateral.
- Some loan providers may impose restrictions on the use of the loan proceeds.
The above are generic advantages and disadvantages of gold and silver loans. They may differ depending on different loan providers. It is best to research and compare loan terms to assess their pros and cons accurately.
Which Companies Offer Silver & Gold Loans?
While banks are major players in the global financial system, it is uncommon for banks to offer precious metal loans. A quick check on the Internet shows that banks mainly offer gold and silver loans in countries with high ownership of precious metals, such as India.
The most common way to borrow money with gold, silver, or other precious metals is probably through a pawnbroker. However, pawnbroker interest rates are often very high compared to other companies offering silver and gold loans.
Some precious metal companies and bullion dealers also offer gold and silver loans at more attractive interest rates than pawnbrokers. With precious metals trading already a mainstay in their business, such companies are familiar with the value of bullion bars and coins. They may operate their own vault or store bullion with a third-party vault.
For example, Silver Bullion is a leading Singapore precious metal dealer that operates its vault, The Safe House, at The Reserve alternative asset facility. The company is one of the first companies in the world to offer precious metal loans that match borrowers and lenders peer-to-peer.
Choosing the Best Precious Metal Loan Provider
With several loan providers available worldwide, choosing the right precious metal loan provider that meets your needs is important.
For example, if you own physical gold and silver for long-term wealth protection and are concerned about exposure to risks from the financial system, selecting a loan provider that is defined as a financial institution (FI) may not be a good choice. Examples of financial institutions include banks, credit unions, securities dealers, and investment companies.
If government reporting requirements or gold confiscation is a concern, you may not want to choose a loan provider in your country of residence or one with a history of gold confiscation.
Certain loan providers commonly restrict the use of loan proceeds to only commercial investment purposes and not to fund day-to-day personal expenses. This restriction may clash with your purpose of obtaining a gold or silver loan.
If jurisdictional counterparty risks are important, you may not want to use a loan provider who vaults your precious metals with a global vault operator that operates in multiple countries worldwide.
Obtaining a silver or gold loan should also ensure that your precious metal collateral is safely protected and that you can use the loan proceeds flexibly.
Borrow Against Your Precious Metals with Silver Bullion
Founded in 2009, Silver Bullion is one of Singapore’s largest precious metal dealers. It specializes in wealth protection and offers services, including buying and selling investment-grade precious metals, bullion storage, and non-destructive testing at its ISO-9001-certified vault, The Safe House, located at The Reserve alternative asset center within Singapore’s Changi Business Park.
A member of the London Bullion Market Association (LBMA) and the Singapore Bullion Market Association (SBMA), Silver Bullion also operates a bullion retail store at Millenia Walk in downtown Singapore.
Since 2015, Silver Bullion’s Secured Peer-to-Peer (P2P) Bullion Loan Program has been one of the most innovative and best precious metal loan programs worldwide. Shortly after its launch, the loan program was shortlisted among the top 40 finalists of the Monetary Authority of Singapore (MAS) Fintech Awards 2016.
The loan program allows you to borrow against your investment-grade gold, silver, and platinum bullion.
Silver Bullion is the intermediary between borrowers and lenders, providing a transparent loan marketplace for loan matching and storing the bullion collateral in its vault, The Safe House.
Borrowers and lenders on the loan platform are registered clients of Silver Bullion who have undergone and passed the company’s KYC checks, making loan transactions safe between verified clients.
Borrowers and lenders determine loan interest rates when they publish their borrowing requests or lending offers on the program’s bid/ask loan marketplace, allowing participants to find the best loans that meet their needs.
No Restrictions on How You Use the Loan Proceeds
We understand that our clients have different financial goals and require flexibility in leveraging their stored precious metals. Our Secured P2P Bullion Loan Program does not restrict borrowers’ use of loan proceeds.
Your borrowed funds can be used as you desire, whether for home renovation, business expenses, investments, or other purposes.
Minimize Counter-party Risks to the Financial System
Unlike other silver and gold loan programs, Silver Bullion’s loan program matches borrowers and lenders peer-to-peer.
Instead of a bank or financial institution (FI) providing liquidity, the lenders are private individuals seeking to lend funds for an interest return, reducing potential exposure to the global financial system.
Loan Collateral Are Tested For Authenticity
As Silver Bullion is a pioneer in non-destructive precious metal testing, having tested millions of troy ounces of bullion since 2012, all precious metals used as loan collateral have been tested and guaranteed to be genuine by our testing laboratory at The Safe House.
Strong Legal Protection for Your Stored Bullion
Your precious metals stored at The Safe House possess unique parcel serial numbers, allowing you to be identified as the owner. You own your precious metals throughout the loan tenure and the storage duration. Your ownership is guaranteed, as you will receive a commercial invoice listing your bullion assets' parcel numbers and as well as parcel photos.
The invoice attests, under Singapore law, the parcel's ownership transfer as of the invoice date. Note that tampering with or outright forging an invoice is considered a criminal offense in Singapore, providing strong legal protection to customers.
Store With an Experienced Operator in a High-Security Vault
Since 2014, Silver Bullion has operated its vault, The Safe House, which stores millions of troy ounces of gold, silver, and platinum for its clients. Located at The Reserve, Silver Bullion’s headquarters, The Safe House is also a Singapore Customs registered bonded facility, which allows tax-deferred storage of taxable precious metals.
Managed by a team of industry veterans, The Safe House is equipped with state-of-the-art security systems that protect the precious metals stored on its premises.
Bullion stored by The Safe House is also insured by one of the most comprehensive insurance policies in the industry. This policy covers loss against fire, third-party theft, inside jobs, terrorism and sabotage, and mysterious disappearances.
Third-party auditors audit precious metals stored at The Safe House vault every quarter to ensure they are accounted for.
Contact Silver Bullion for More Information
We believe we have the right one for you if you are looking for a credible and transparent precious metal loan program. Please call or email us if you have any questions about our Secured P2P Loan Program.