What is better to chose: - Gold Loans from banks or non-banking finance companies?
As the prices of gold are rising, the gold loans have become a kind of lifeline for all the small businesses, salaried individuals, traders and the self-employed people who are looking for some help in case of a financial emergency. The most crucial decision that a person has to make while applying for a gold loan is whether to apply it in a bank or in a non-banking finance company. There are a lot of factors that a person has to consider before deciding one such as the interest rates, the tenure of repayment, the safety of the pledged gold, etc. The gold loan interest are also higher in the non banking finance companies than the interest rates in the banks.
Following are some of the points which will tell you the difference between both of them and which is a better option to go for: -
- INTEREST RATES:-
The rate of interest is determined mainly by how much it will cost the money lender or the bank to arrange for the funds. The non-banking finance companies do not really have an access to the large deposits and therefore, the rate of interest offered by a non-banking finance company is comparatively higher than the interest rates offered by the banks. The maximum limit of the amount of loan is around 90% of the market price of the gold pledged by the borrower. The rate of interest on a gold loan by a non-banking finance company can go as high as 29% whereas the rate of interest on a gold loan ranges from 11%-16%. Also, some of the banks offer some preferential rate of interest to the existing customers.
- LOAN TO VALUE RATIO:-
The loan to value ratio is mainly the loan amount that a person can get on a specific asset deposited by him as a security to the bank or to the money lender. The fluctuations in the price of the gold have no role to play in the amount of loan that is granted to the borrower. Also, the maximum limit of the amount of loan was earlier 75% of the market value of the gold but now the Reserve Bank of India has changed the percentage and it is, now, 90% of the market price of the gold. For instance, if a person has deposited the gold articles worth Rs. 5 lakh, the maximum amount of loan that the person can get is 90% of the market price of the gold. It means that he can get the loan of upto Rs. 4,50,000. SBI gold loan per gram offers the amount of loan according to the price of the gold.
- TENURE OF REPAYMENT OF GOLD LOAN:-
The tenure of repayment of a gold loan is flexible and it ranges from a minimum of 12 months to a maximum of around 60 months. When a person wants to fund some short term expenses or wants some money for a longer period of time, he can apply for a gold loan as it can help you to get the cash immediately. The tenure of repayment of the gold loan offered by the banks are 50% longer than the tenure of repayment of the gold loan offered by the non-banking finance companies.
- REPAYMENT TERMS: -
Both the banks and the non-banking finance companies are better in performance in this option. The three repayment options that are provided by both the banks and the non banking finance companies are as follows: -
- EMIs-
These are the equated monthly installments with the interest rate and a person can repay the loan in the form of these installments.
- Upfront Interest-
In this option, a person can pay the interest and pay for the principal amount at the end of the tenure.
- Bullet Payment-
In this option, a person can repay both the principal amount and the interest rate on the maturity of the loan. The rate of interest monthly but is collected by the bank at the end of the tenure of repayment.
Also Read:- Go With The Gold Loan. Go The Indian Way.
