When you apply for Gold Loan, the first question that comes to your mind is why gold loan, when there are other options which can offer you the required funds. The answer to this question is the ease and convenience with which this loan is processed and disbursed that score over other loan options. Also, it is offered at much lower interest rates as compared to unsecured loans.
The reason behind the easy and simple processing of this loan is that being secured loan finance companies have the option of liquidating gold jewelry or coins as collateral in case the applicant does not pay the loan while this option is not available with Unsecured Loans. So, with this option, NBFC simplify the due Application Process and at the same time, banks also do not apply strict scrutiny.
Here are a few considerations that should be kept in mind before making a final decision.
Eligibility criteria: In case of NBFCs, there is not any strict scrutiny whereas banks have some eligibility criteria that customer needs to fulfill this loan along with Documentation and other formalities.
Interest rate: The interest rates offered by NBFCs are higher as compared to other banks. The reason is the cost of funds is higher when compared to banks as they acquire funds from banks itself. To check the interest rates on gold loan offered in India check our interest rates page.
Loan to value ratio (LTV ratio): LTV is the money granted by the financial companies as a part of the total value of the gold placed as collateral. Recently, as per RBI norms, NBFCs can offer 75% of the market value of gold from existing 60 percent. Banks offer a loan to value of 80-85 percent.
Loan Repayment schedule: According to the RBI guidelines, Loan Against Gold is not offered for the tenure of more than 12 months. In case of NBFCs, interest is paid on a regular basis and principal at the end of the tenure of the loan. Whereas in case of banks, as per the recent provision by the RBI, though the interest for the loan will be charged on a monthly basis, bullet repayment against the gold loan is granted. So, the borrower will have to pay both the principal and interest amount only at loan maturity.
Therefore, if you don’t need money urgently and could wait for 2-3 days you can opt for taking a Loan from banks. Bank will offer you lower interest rates, higher LTV, bullet repayment option and many more. However, if you are in urgent need of cash, opt for taking a gold loan from NBFCs for a short term of one year as will not make any major difference in the cost of borrowing funds.