How To Compare Different Gold Loans In India

Gold loans are offered by both banks—government-owned as well as private sector banks—as also specialised gold finance companies and large non-banking finance companies that focus on retail lending. A retail loan would include individuals taking a loan either for their personal use or for their own small business.

If one is out in the market for a gold loan, there are five key aspects one should look at before deciding on the lender to go with. Here we give a ready reckoner of the parameters one should consider to find a lender of their choice.

Convenience

The single most important factor in the consumer lifestyle that people lead today is time and convenience. People are no longer at the mercy of lenders and do not want to stand in long queues with loads of paperwork.

In fact, just as the Covid-19 pandemic changed most other aspects of human life, gold loans also went digital.

• Apply and avail the gold loan the conventional way, by going to a bank branch with the gold jewellery.
  Or
• They can ask the lender to come to their doorstep to execute and complete the process.

Most banks do not offer digital gold loans. A borrower has to go to the bank branch to complete the gold loan process.

Difference Within NBFCs

• Some lenders offer digital gold loans only in name. The initial application is submitted online but the whole     experience thereafter is in the traditional way.
• Others offer an end-to-end digital process and product.

For instance, one lender that offers gold loans says one can apply online but access to an online gold loan facility will be available only after completing the registration process at its branch. In the case of another lender, the process starts by ‘safe-locking’ the gold ornaments at a branch and then registering for its online gold loan service. Most banks, including large private banks, do not even offer a digital gold loan experience.

But at least in one case the process is 100% digital. One can apply online to IIFL Finance and within minutes a representative of the company will contact the borrower. The company executive would then come down to the borrower’s address, value the gold jewellery and pick it up. Thereafter, the borrower instantly gets credit for his or her bank account. The loan can then also be repaid and managed online.

Speed: 30-45-60 Minutes Or Days!

Another important factor for a gold loan customer is to get a loan quickly. Most gold financers offer a traditional way to disburse the loan and the process itself is wholly or largely dependent on physically going to the branch. This often means a few days to get the loan approved.

For instance, one of the country’s biggest private banks offers a gold loan with 45 minutes, but it doesn’t offer a digital gold loan, which means one needs to take time out to visit the branch. Another large private-sector bank says it can give the gold loan in 60 minutes.

In contrast, IIFL Finance, one of the pioneers of digital gold loans, promises a gold loan within 30 minutes flat. This is as fast as getting a pizza on-demand!

Loan Amount

The amount that one can get against for the gold jewellery varies from lender to lender. Companies follow a single loan to value (LTV) ratio, which is 75% as per current regulations. This means one can get only up to 75% of the value of the gold jewellery as a loan, but different lenders have different thresholds for the actual amount they approve.

For instance, two of India’s top private banks offer a minimum loan amount of Rs 25,000 in urban areas and Rs 10,000 in rural areas. This means one needs to have a minimum of 7 gm of gold jewellery whose value is around Rs 35,000 to get a loan worth Rs 25,000-27,000. Another large private bank has a minimum threshold of Rs 50,000 loan amount.

But NBFCs like IIFL Finance offer gold loans of as low as Rs 3,000. This means if you have a jewellery with even 1 gm of gold, whose value is around Rs 5,200 currently, you will be able to get a gold loan. That’s not all either. NBFCs also offer much larger gold loans if required that can go over Rs 1 crore, while banks typically have a ceiling of Rs 25-50 lakh.

Interest Rate

The interest rate charged by the lenders is also a key factor for a gold loan borrower. The monthly outgo in terms of equated monthly instalments (EMI) is dependent on the interest rate. Interest rates vary based on the loan amount, tenor and purity of the yellow metal.

Assuming the criteria to be similar across the board, if we consider the interest rate ranges, we get top private-sector banks offering gold loans with annual interest rates starting from 7.55% and going up to 19.8% with the average in the range of 10.48-14.9%.

If we look beyond the banks, among NBFCs, specialized gold loan providers have a clutch of products with annual rates starting at around 9% and going up to 22%, but the average is around the 12% level.

IIFL Finance, in contrast, offers one of the most competitive gold loan interest rates. The annual rates charged by IIFL Finance start at as low as 6.48% and go up to 27%.

Charges

Both banks and NBFCs have a number of other charges associated with the loan, like processing charges, foreclosure fees, renewal fees, valuation fees and so on. Some banks charge foreclosure charges for six months and above, but NBFCs like IIFL impose no such charges even if one wants to prepay and close the loan account after just three months. The processing charges for NBFCs is typically lower than the banks.

Conclusion

The key factors to keep in mind while taking a gold loan are convenience, approval process, loan amount, interest rates and other fees that a lender charges. Compared to banks, NBFCs offer gold loans as a much more competitive product in terms of pricing or interest rates, the amount one can avail and convenience.

Within the NBFC pack, IIFL Finance offers the best value proposition. It provides a digital gold loan, offers lower interest rates than most of its peers, and has the fastest turnaround time in disbursing the amount. IIFL Finance also offers the smallest loan amount, so that people who need small-ticket loans for a short duration can also borrow.