What are the rates and charges of gold loans offered by banks?

Let’s compare the gold loan interest rates offered by some leading banks and NBFCs.

What are the rates and charges of gold loans offered by banks?

The timeless appeal of gold is just one reason why it seems so attractive to us. The unparalleled value of gold as collateral makes it the fastest and easiest way to avail of a secured loan. Over the last five decades, the value of 10 grams of 24 karat gold has risen by an incredible 255 times – from Rs 184 to Rs 47,000.

You can raise funds from banks or NBFCs (non-banking financial companies), which offer flexible options when gold is pledged for secured loans. The deluge of offers with varying rates of interest and tenures may appear confusing. So it is necessary to understand the subtext of interest rates, tenures, and clauses before applying for the most suitable loan. 

Here’s a primer to help you zero in on a gold loan that fits your needs best.

What is the average loan amount for every gram of gold?

For every gram of gold, the maximum loan amount you can avail of is around Rs 2000. While the rate of gold may fluctuate, this is the average amount you can expect to raise. Use this to calculate the total amount you can get from the gold you intend to pledge.

Related: 13 Commonly asked questions regarding gold loan 

Current gold loan interest rates of banks and NBFCs

Banks have the lowest interest rates, with SBI offering loans at 7.5%. At the higher end are NBFCs, which can charge as much as 29%. However, it is important not to make a sweeping comparison of interest rates, as certain rates depend on the type of loan, tenure, maximum amount, and other criteria. 

Let’s compare the gold loan interest rates offered by some leading banks and NBFCs.

Bank/NBFC Interest Rate (per annum) Loan Amount (INR)
SBI 7.50% onwards 20,000 to 20 lakh
ICICI Bank 11% onwards 10,000 to 1 crore
HDFC Bank 9.90% to 11.52% 25,000 to 50 lakh
Axis Bank 15% onwards 25,000 to 25 lakh
Muthoot Finance 12% onwards 1500 to (no upper limit)
Manappuram Finance 12% to 29% Max 1.5 crore

The interest rates mentioned above are as of July 2020

Related: 5 Myths about gold loans you shouldn't believe

What is the tenure of a gold loan?

Gold loans can differ in tenure and this is an important factor for the lender when working out interest rates. The tenure for repayment can extend from one week to as long as twenty years. This allows the borrower to choose a repayment tenure that fits their abilities and requirements. 

What are the applicable charges on a gold loan?

Various charges are involved while securing a gold loan, and this is where many borrowers miscalculate. Applicable charges can include processing fees, interest rates, appraisal charges, foreclosure charges, renewal fees, stamp duty, overdue handling (also known as penal interest), and documentation charges. The processing fee could range from 0.5% to 1% of the loan amount, plus applicable GST. Documentation and renewal fees are not very high; they typically do not exceed Rs 200 and Rs 1000 respectively. Some banks/NBFCs levy foreclosure charges while others do not, so check this beforehand.

What is the process of applying for a gold loan?

The process of applying for a gold loan is very simple. You will need two sets of photographs, a demand promissory note, documents in support of your identity (KYC), and a witness letter in case the borrower cannot read or write. The list of KYC documents includes driving licence, PAN card, passport, voter ID (EPIC), Aadhaar card, and ration card. You may have to submit one or more of these, depending on the institution you choose. 

What are the new rules that RBI has mandated for lending?

New rules of RBI have mandated banks to adopt MCLR (Marginal Cost of funds based Lending Rate) for the purpose of lending. This is effectively a benchmarked rate of lending, below which institutions are not permitted to lend. Banks have laid down criteria to determine the interest rates as per MCLR, and based on this the actual interest rates are fixed for loans. Understanding the MCLR rates published by banks makes it easier to get an idea of the actual interest rates that will be levied (which will be marginally higher than the MCLR).

The above information will help you narrow down your choices for a secured gold loan. Gold as collateral offers some distinct advantages. The capital raised from a gold loan is unfettered – that is, it can be used for any purpose, unlike other loans. For instance, the disbursed amount of a home loan is intended only for home construction. By virtue of being a secured loan with gold being pledged, the documentation process is much quicker in case of a gold loan.

The relatively lower interest rates make gold loans a financially prudent choice to raise funds. With rare exceptions, most of the gold in an average family’s possession is only used occasionally. This makes it a good choice to use for raising funds. Lenders consider gold one of the best forms of collateral, in view of the fact that its average value appreciation is five times year on year. 

Related: 5 Mistakes to avoid while applying for a gold loan

What are the tips to invest in gold?

There are three different types of investments possible in gold: physical gold, exchange traded funds (ETFs), and bullion investment. Each has its own advantages and disadvantages, so your choice would depend on your ability to lock in funds and the size of the investment. 

You can buy physical gold through a savings scheme, where you deposit money every month for a certain period. At the end of the tenure, you will get the equivalent value in gold, calculated on the basis of the rates prevailing at the time of maturity.  ETFs, on the other hand, are an investment where you do not actually get to possess gold, but hold its value in paper, which is then traded through a demat account. 

The third option is investment in bullion/companies that are into gold mining. You can also opt for the sovereign gold bond (SGB) scheme from the government, where you purchase gold on paper and receive its maturity value at a later date. This option is announced from time to time; it is not always available. Here are some 6 Situations in which a gold loan can come in handy




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