A number of banks are offering gold loans below 8 percent per annum interest rate. But NBFCs have increased loan rates with the cheapest loan now being available at 10 percent.
Gold is not only appreciated in India for its ornamental value but also as investment and savings option. Gold loans have helped people during cash crunch or financial stress. In India, gold loans are easy to get. Anyone can pledge their gold jewellery to get financial aid. Some people also prefer to take a gold loan to tide over the current crunch over selling long-term investments.
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Is it a good time to take a loan?
Given that interest rates on gold loans by some banks are low, it may be a good time for those in need of short-term capital to take a gold loan. However, experts say taking a loan at this time could be good or bad depending on the reason why the loan is being taken.
If an individual is pledging gold for a loan to finance consumption needs when his income is under stress, it may not be a good idea to take the loan. This is because, if the individual is unable to repay the gold loan, the financier may sell the pledged gold.
However, if an individual is taking a gold loan to fund short-term working capital needs it may be a good time to take a loan, experts said.
“For a small businessman whose need is driven by a rise in the payment cycle and who is looking to cover a gap for a few months, it is not a bad idea,” Indian Express quoted an expert as saying.
The amount on the gold loan depends on the value of the gold deposited as collateral. At present, NBFCs lend up to 60 percent loan to value (LTV), while banks offer 75 percent LTV. This means, if the gold is valued at Rs 1 lakh, the individual can get a loan amount of Rs 75,000.
Soaring gold prices
The price of 10 grams of 24-carat gold in India is Rs 52,595 currently. High prices could translate into a higher value for the gold pledged and a higher loan amount from lenders.
Gold loan interest rate
A number of banks are offering gold loans below 8 percent per annum interest rate.
The Bank of Maharashtra offers a gold loan scheme called Maha Gold that comes at an interest rate of 7 percent per annum. Customers can avail a maximum of Rs 5 lakh loan and a minimum loan of Rs 20,000. Maximum repayment period is up to 12 months.
Similarly, the State Bank of India (SBI) offers two gold loans — SBI personal gold loan and SBI realty gold loan -- at an interest rate of 7.50 percent per annum. The maximum loan amount under these schemes is Rs 50 lakh, while the minimum loan amount is Rs 20,000. Loans can be repaid within 12 to 36 months.
Canara Bank has three gold loan schemes — Swarna gold loan schemes, agricultural gold loan schemes and MSME gold loan schemes. The interest rate for these loans ranges between 7.35 and 7.65 percent per annum. The maximum loan amount available under these schemes is Rs 35 lakh, while the minimum amount is Rs 5,000. The loans can be repaid within a period of 6 months to 2 years.
Meanwhile, NBFCs have increased loan rates with the cheapest loan now being available at 10 percent.
A positive for NBFCs
Meanwhile, teaser loans, which were introduced by non-banking financial companies (NBFCs) during Diwali last year, have been discontinued since March-April this year, which will positively impact gold financiers, CLSA said in a report on gold finance. The firm retained its estimates and recommendations for two NBFCs -- Muthoot Finance and Manappuram Finance -- unchanged.
Teaser loans had severely crimped profitability of the two gold financiers, the note said.
In October 2021, the brokerage house had said Muthoot Finance and Manappuram Finance had the potential to generate at least 10-12 percent compounded annual growth rate (CAGR) in the next five years regardless of gold prices.
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(Edited by : Sudarsanan Mani)
First Published: IST