Gold Loan: Banks or NBFCs?

With the recent notification of RBI (Reserve Bank of India) about limiting Non Banking Financial Companies (NBFC) to provide Gold Loan up to 60% of value of Gold Jewellary, it seems now rules of the game would be rewritten.

Gold Loan - Banks or NBFCs

Now, banks might turn out to be better option for Gold Loan borrowers due to following reasons:

  1. NBFCs can offer 60% of value of Gold Jewellary while Banks offer almost 90% of value of Gold Jewellary. So for borrowing one lakh you would need to pledge 44 grams gold (at Rs 2,500/gram) with banks while with gold loan NBFCs you would need to pledge minimum of 66.5 grams of gold (at same the rate for gold).
  2. Banks charge a lower rate of interest on the loan. NBFCs like Muthoot Finance and Mannapuram Finance charge between 12% – 25% depending on your credit history. On the other hand, banks like Central Bank and HDFC Bank charge in the range of 12% – 16%.
  3. The rate at which the bankers value gold does not change dynamically with the change in market price of gold. They are revised generally on a monthly or a weekly basis.

But NBFCs gain when it comes to loan processing time, processing fees and flexibility in duration of the loan.

For processing a gold loan request, banks charge around 1% of the loan value as processing charges and in some cases borrowers face an additional charge under stamp duty and assayer charges. Gold finance companies however have a very nominal processing charge and this again is a fixed amount and doesn’t vary with value of the loan. At Manappuram Finance for instance the processing fee is Rs 8 and from the second month of the loan the borrower is levied Rs 2 as renewal fee in addition to the interest.

Banks also take a relatively longer time to process a gold loan. This is generally because of the additional paper work and sometimes because of certain procedural delays and glitches at the back-end.

So now it’s you to decide what you want!

if you are looking for higher value of gold loan at lower interest rate bank might be a good option but if you want a more flexible approach with faster processing time NBFCs would be a better option.

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