People sought to take the loan against gold but are not sure where to take it from financial institutions or non-banking financial corporations. Taking a loan against gold is one of the traditional practices followed by the people. Even today, gold loan is considered to be a good option for borrowing funds. Gold loans are preferred more than personal loans because of several factors, and thus households believe in investing in gold for quick disbursement of loans from the banks or NBFCs.
It isn’t effortless to decide as to from where to take the gold loan, banks or NBFCs. Usually, banks offer an interest rate of 14% to 18% in the case of gold loans, while NBFCs offer an interest rate of 18% to 26% on gold loans. Technically people should borrow from the banks because it is offering low-interest rates. Still, understanding other terms in taking a loan also plays a vital role like the loan to value ratio, tenure, additional charges, fees, penalties, etc.
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Loan to value or per gram rate of gold:
If an individual wants an investment of INR 10 lakhs, he won’t end up getting the full amount as a loan; instead, only a certain percentage of the loan will be sanctioned, which will depend on the loan to value ratio. RBI mandates a 75% loan to value ratio, which means that the individual, in this case, would get a sanctioned limit of INR 7.5 lakhs against pledging gold worth INR 10 lakhs. Banks are quite conservative, thus allows a limit of 60% to 65% as compared to NBFCs offering up to 75% of the loan to value ratio.
Tenure:
Banks offer a loan for long term or tenure, i.e., ranging from 1 to 3 years as compares to NBFCs providing the credit for a shorter period, i.e., not more than one year ranging from 3 months to 1 year. Long tenure will cost the borrower more, i.e., he will pay more than a loan for a shorter period.
Repayment terms:
Banks recover the interest and principal in the form of EMIs, i.e., equated monthly installments. Massive cash outflow for households every month. On top of that, if the borrower defaults on any of the EMIs, penalties will be charges. NBFCs, on the other hand, charge monthly interest and has a facility of bullet payment.
Convenience:
NBFCs have higher penetration levels than banks; thus, it is easy for any individual living in any corner of the country to approach and get a loan from the NBFCs, this is not easy if it is in with regards to banks.
Customer service:
Banks provide multiple services to their customers. Banks may take more than 2-3 days to sanction a gold loan as they form a small part of their loan portfolio, whereas, for NBFCs, gold loans form a more significant portion of their loan portfolio, and they believe in quick disbursement of credit to the clients.
Borrowing for your own business:
If the borrower is a self-employed individual, then loan to value ratio, repayment, tenure, and service could be critical criteria for them apart from the interest rate. NBFCs offering loans for a shorter period suits the business people.
Borrowing for your own business:
If the borrower is a self-employed individual, then loan to value ratio, repayment, tenure, and service could be critical criteria for them apart from the interest rate. NBFCs offering loans for a shorter period suits the business people.
Salaried individuals:
Time is an issue for salaried employees. Thus NBFCs can be a good option for them to take a gold loan from as banks may take more time than what NBFCs usually take.
People sought to take the loan against gold but are not sure where to take it from financial institutions or non-banking financial corporations. Taking a loan against gold is one of the traditional practices followed by the people. Even today, gold loans are a good option for borrowing funds. Gold loans are preferred more than personal loans because of several factors, and thus households believe in investing in gold for quick disbursement of loans from the banks or NBFCs.
If an individual wants a loan of INR 10 lakhs, he won’t end up getting the full amount as a loan; instead, only a certain percentage of the loan will be sanctioned, which will depend on the loan to value ratio. RBI mandates a 75% loan to value ratio, which means that the individual, in this case, would get a sanctioned limit of INR 7.5 lakhs against pledging gold worth INR 10 lakhs. Banks are quite conservative, thus allows a limit of 60% to 65% as compared to NBFCs offering up to 75% of the loan to value ratio.
Benefits of NBFCs over banks:
- No jumping rates
- Flexible repayment
- Longer tenure
- No hidden charges
- Doorstep service at times
- Thus it is essential to look beyond interest rates just because one institution is offering a loan at the lower interest rate; we should seek that route should not be the condition.
We hope that you have clear distinction between between both and make a right choice.
