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.

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.