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While global interest rates are trending down, they remain at elevated levels, despite rising uncertainties in the global economy. This is also reflected in the strengthening values of precious metals like gold and silver, often seen as safe havens during times of heightened market volatility.
This perfect storm of high interest rates and high gold and silver prices presents an opportunity for both borrowers and lenders considering gold loans and silver loans.
Gold And Silver Loans Are Better Than Unsecured Personal Loans For Borrowers
Gold loans and silver loans may be better options for your financial needs compared to getting an unsecured personal loan.
Logically, precious metal loans using gold and silver as collateral often charge lower interest rates compared to unsecured personal loans. There is usually a limited downside for lenders should the loan default, as they can liquidate the gold and silver assets to recover their funds.
While gold loans and silver loans are limited by the value of your actual holdings, unsecured personal loans typically take into account your income and credit history. This may mean a higher level and cost of administrative vetting for lenders. If you are retired without an income history or don’t have the best credit rating, the amount you can borrow via an unsecured personal loan will also be very minimal.
Finally, and perhaps most importantly, getting a loan secured by gold and silver enables you to unlock the value of your precious metals without needing to sell them. Because you still own the bullion while repaying the loan, you stand to benefit from any appreciation in value. Selling your gold and silver investments may incur transaction costs and bid-ask spread. Moreover, you may not need the full value of your entire gold and silver holdings, and gold and silver loans enable you to access a partial value of your investments.
Read Also: Investing In Precious Metal: Pros & Cons Of Buying Physical Gold Vs Paper Gold
P2P Loans Allow Individual Investors To Lend To Those Who Own Gold And Silver Investments
Lending money to another individual, even when they are family and friends, can feel like a risky and complicated proposition. Beyond potentially damaging the relationship, it is natural to worry about the possibility that they cannot repay the loans, and the near-impossible task of trying to recover your funds in such a situation.
Silver Bullion’s Secure P2P Loans Program overcomes many of these hurdles, not only ensuring the authenticity and purity of the precious metals being used as collateral but also ensuring that all borrowing and lending transactions are done transparently, securely, and anonymously via their online P2P market platform, with Silver Bullion acting as an independent custodian in between.
How Silver Bullion’s P2P loans platform works
Silver Bullion’s P2P market platform allows borrowers to make loan requests that lenders can then respond to if they agree to the terms. Similarly, lenders can put out offers that borrowers can respond to if they agree to the terms. By presenting this information publicly, both borrowers and lenders can make better decisions according to the range of interest rates. Borrowers and lenders can currently transact in SGD, USD and EUR.
Once the loan request is filled, Silver Bullion creates a legally binding contract between the lender and the borrower. They enforce the contract by acting as a custodian, collecting and disbursing funds between the parties. Since the collateral is held in Silver Bullion’s vault, this ensures that the bullion is locked as collateral cannot be sold, moved, or retrieved by the borrower.
Silver Bullion’s P2P platform for 12-month loans in SGD
How To Borrow Money On Silver Bullion’s P2P Platform
To be a borrower on the P2P platform, you need to open a free S.T.A.R. Storage account and own at least one precious metal “parcel” stored in Silver Bullion’s vault. A parcel is the minimum unit of precious metals that qualifies for S.T.A.R. Storage. For example, a 1-kilogram gold bar parcel requires only a single gold bar, while a 100-oz silver bar parcel requires five pieces of 100-oz silver bars. In the latter example, a uniquely serialised tamper-evident bag is used to seal the five silver bars, giving the parcel a single unique identifying serial number.
You then choose any number of parcels to put up as collateral and indicate how much you wish to borrow. The maximum collateral-to-loan ratio is 160% for gold parcels and 1-month loans collateralised with silver parcels, or 200% for parcels containing other precious metals like silver, platinum, palladium, and nickel. To put it another way, the most you can borrow is 62.5% of the value of your gold (and silver for 1-month silver loans), and 50% of the value of your silver and other precious metals.
For example, a borrower who wants to borrow $167,000 against his precious metals investments will need to put up about $284,000 worth of precious metals.
On the P2P market platform, users can specify their desired interest rates, borrowing tenure, and loan amount. Silver Bullion offers tenures of 1, 6, 12, and 24 months, so borrowers do not need to hold on to the funds and pay interest rates for longer than they need the money.
What Borrowers On Silver Bullion’s Secure P2P Loans Program Should Look Out For
The collateral-to-loan ratio required by Silver Bullion’s Secure P2P Loans Program prevents borrowers from accessing funds beyond their means. However, since bullion prices fluctuate, Silver Bullion has instituted a “liquidation threshold” of 110%.
This means that should the value of the collateral ever drop to 110% of the loan amount, and margin calls also remain unfulfilled, the collateral would be liquidated to cover the loan amount.
How To Lend Money On Silver Bullion’s P2P Platform
To be a lender on the P2P platform, you also need to open a free S.T.A.R. Storage account, and transfer SGD, USD, or EUR funds into your P2P account. You can start lending even if you have not invested in any precious metals with Silver Bullion.
An example of a lender’s offer on the P2P platform.
On the P2P market platform, you can set your preferred interest rates, tenure, and amount you wish to lend. Silver Bullion allows 1, 6, 12, and 24-month tenures.
Lenders can opt for “partial fill” on their offers, which allows multiple borrowers to accept the terms with smaller principal amounts. This is good for lenders with attractive terms and want to offer a higher amount than what a single borrower may require on the platform. “Partial fill” allows multiple borrowers to match your terms with smaller principal amounts until the full offer amount is reached.
What Lenders On Silver Bullion’s Secure P2P Loans Program Should Look Out For
A system Silver Bullion calls the “Sweeper Fund” ensures that lenders are well-protected. The Sweeper Fund provides temporary funds, for a fee, to borrowers who would otherwise be late or default on their payment.
Lenders, therefore, will always receive the full principal and interest on time, regardless of whether the borrowers make repayments. As a result, Silver Bullion boasts that there have been zero late payments and zero defaults since they launched the P2P platform in 2015.
Source: Silver Bullion
What Both Borrowers And Lenders Need To Know
As a bullion dealer, Silver Bullion is regulated by the Ministry of Law under the Precious Stones and Precious Metals (Prevention of Money Laundering, Terrorism Financing and Proliferation Financing) Act. However, the P2P Loans system does not fall under the scope of the Monetary Authority of Singapore (MAS) or the Ministry of Law.
This is because Silver Bullion is not a financial institution and does not act as a lending entity but only provides a secure framework to match borrowers and lenders. The platform also uses a physical good, bullion, as collateral rather than a financial instrument. Additionally, lenders’ funds do not commingle with the company’s assets, being held in a dedicated bank account and not on Silver Bullion’s balance sheet. These unique features of the lending platform distance it from the traditional financial institution activities that MAS regulates.
The fees for this service are therefore nominal and transparent, with lenders paying 0.5% per annum of the principal amount for 6, 12, and 24-month tenures, and paying 1% per annum of the principal amount for 1-month tenures.
