Looking for a loan against your gold? Not sure of whether to go to a Financial Institution or to your neighborhood pawn broker? Read on. We have identified the differences for you.
History of Gold loan
Getting a loan against gold is not a new practice in India. Gold Loans are one of the oldest forms of borrowing and lending. Even today, Gold Loans are a popular form of borrowing. Availability of gold in Indian households coupled with quick disbursement and flexibility in repayment have been instrumental in its popularity.
Bank or NBFC: The classic delimma
Once you decide to take a gold loan, chances are you too will face the dilemma of choosing between a bank and an NBFC. Isn’t it just a case of whoever offers lower interest? The answer is rarely “yes”, because multiple factors are at play. Thus it is crucial to look at the other variables that could eventually affect your payout.
Borrowing on a gold loan from a bank would typically cost you an interest rate of 14%-18%. This might seem low when compared to the 18%-26% interest that NBFCs charge on gold loans On the surface, borrowing from a bank because of its low interest rate seems like a no-brainer, doesn’t it? Not really. Understanding other terms of your loan such as Loan to Value, tenure, additional charges etc is crucial before making the decision.
Loan to Value (LTV) or Per Gram Rate
If you pledge gold ornaments valued at Rs. 10 lakhs, will you get all of that value in the form of a loan? No. This because of LTV or loan to value ratio. In simple words amount of loan you will get on the underlying value of your Gold. RBI mandates a maximum Loan to Value ratio of 75%. This means, you can avail a maximum of Rs. 7.5 Lakhs as loan for pledging Rs. 10 Lakhs worth of gold ornaments.
Banks are generally conservative in their approach and offer a low LTV of around 60%-65%. Compared to this, NBFCs are aggressive and offer a higher LTV going upto 75%.
Banks generally offer longer tenure loans extending between 1 year to 3 years whereas NBFCs typically offer shorter tenure loans from 3 months to 1 year. Do keep in mind that a long tenure will also mean that you’ll pay more across the life of the loan since your interest will keep accruing, while an extremely short tenure would land you staring at auction soon than you anticipate.
Typically, banks charge an EMI (Equated Monthly Installments) on the loan. EMIs could be convenient if you have sufficient cash flows every month. However, if you default on your EMI, you face heavy penalty. NBFCs, on the other hand, charge only monthly interest and allow for bullet repayment. This is useful when you want to reduce monthly payment and pay the principal at the time of maturity.
If you live in a city like Bengaluru, you would find it convenient to walk up to a NBFC near your home to take a gold loan. NBFCs have mushroomed over the years and have achieved higher penetration levels than banks. The same is not the case with banks - the branch of the bank you hold an account might not be in proximity.
Why travel to a bank in today’s age? Given technological progress, it is possible to avail gold loans at your doorstep. Check out Rupeek, one such platform offering instant gold loans at your home/office.
Banks have to provide multiple services to their clients. Gold loans form a small part of their overall product portfolio and hence they tend to take a long time in processing your application. It might cost you 2-3 trips to the bank to complete your loan process. Gold loan NBFCs have a more focused approach and hence tend to offer faster services.
Borrowing for your own business?
If you are self employed businessman, then LTV, repayment, tenure, and service could be an important criteria besides interest rate. Ideally, you would like to go for a loan with a longer tenure that matches your business payment cycles.
Lesser interest rate of bank might be attractive but banks don’t offer flexible payment and there is a penalty in case of default of EMI. A few NBFCs offer loans ultra short tenure of 3 months. Both these are not suited to business needs. As a business borrower you would want to adjust your repayment cycle as per your business cycles. (Tip: With Rupeek, you can operate your business with confidence. Borrow at your doorstep and pay only once in 6 months.)
Salaried borrowers are short on time due to job timings. They also prefer regular interest payments. Now no need for taking a leave to avail Gold loan. You can avail instant gold loans at your doorstep via Rupeek and repay easily online.
Rupeek Gold loan based in Bangalore, offers the following benefits over NBFCs and Banks:
- Non Jumping Rates: Rupeek offers fixed interest rates as low as 0.49% per month which don’t change with time or on your failure to make interest payments.
- Flexible Repayment: Rupeek offers customers with the flexibility to make their payments at their own time. Customer can choose to only pay once in 6 months.
- Longer tenure - Rupeek offers optimal tenure of 6 months year compared to ultra short tenure of 3 months prevalent in market. You can also chose to renew your loan post 6month to extend tenure of 1 year.
- No hidden charges- Rupeek offer transparent schemes with zero processing fee and no hidden charges.
- Doorstep service – Rupeek offers a unique proposition of secure doorstep service at your home or office, with a promised of delivery within 60mins of loan application. All this at no additional cost.
To summarise, look beyond interest rates. Banks take longer processing time, offer lower LTV and have a strict EMI model. NBFC offer higher LTV but higher interest rates as well. Rupeek offer a novel option to the gold loan borrowers. Thus carefully weigh in all the factors and then make your decision.