Gold loan is expansive in terms of availability as almost every primary person can get the advantage of a gold loan, and almost all Banks and NBFCs deliver it. The reason behind it being so popular among the masses is that no income proof is seen to approve the gold loan. It is a secured loan that bestows the creditor a precious article like gold which he can effortlessly liquidate any time to realize his loss in case the debtor delays to reimburse. Moreover, the homemakers and retired persons can also apply for the loan when the family is in need. A person with no income and credit score can effortlessly apply for a gold loan and get the loan amount disbursed within no time. Even people who do not have a good credit score can also improve their CIBIL credit score by paying the monthly EMI of the gold loan on time.
After the gold prices hiked, the Non-Banking Financial Companies are extending their gold loan scheme, and the growth is estimated to be 15 to 20% or more than the previous year. Some NBFCs have also witnessed 28% growth in the gold loan business in the financial year 2020. The search in the price of gold has increased the demand for gold loans in the masses. However, the outbreak of the coronavirus in the country has impacted the incremental demand for gold loans. But towards the end of 2020, the price of yellow metal diminished, which hit the gold loan business in the first quarter of 2021.
The current situation has made the unsecured loan market scarce, forcing people to look for secured options. Some prominent gold loan NBFC saw growth in 2020 due to the demand and availability of credit the companies could provide. The disruptions in unsecured loans and an escalation in gold prices have impacted the gold loan market. Small or medium traders and other customers are provided with better accessibility, and this convenience attracts more people towards a Gold Loan. Gold Loan Interest Rate is reasonable and pocket-friendly.
Both the Financial Institutions: Banks and NBFCs furnish Gold Loan, but the NBFC is gaining popularity among the masses. The Non-banking financial companies provide 80% to 90% of the value of gold pledged to them. For example, if a gold ornament of Rs 5 lakh is pledged to an NBFC, then Rs 4 to 4.5 lakh can be avail as a gold loan. Moreover, the total gold loan amount that can be obtained from a Bank is lesser in comparison to the NBFCs. Some NBFCs have a limit of Rs 1 crore, whereas some other NBFC does not limit providing the gold loan. Most NBFCs provide their customers with a repayment scheme where just the interest amount is paid during the repayment tenure of the gold loan.
Banks generally charge a fee for valuing gold, and the processing charge of the gold loan can range between 1% to 2% of the loan value. On the other hand, many NBFC does not charge any processing fees, and no extra amount for valuing the gold is charged from the customers. Additionally, banks can limit the use of gold loan funds in some areas like agriculture, etc. But NBFCs do not restrict the usage of funds provided against a gold loan amount that can be used for any speculative activities. But NBFC's generally charge a higher rate of gold loan interest than banks like the SBI Gold Loan Rate.
Gold loans offered by NBFC are mainly easy to get as it comes with minimum documentation and more manageable repayment options. Further, the processing fees and prepayment charges are not taken from the borrower. So, those who cannot fulfill the eligibility criteria and documentation criteria of the Bank can try to get a gold loan from NBFCs.
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