Looking for a loan against gold jewellery? Banks may be a better option, when compared to non-banking finance companies (NBFCs). Reason: while the Reserve Bank of India has prescribed a loan-to-value ratio (LTV) of 60 per cent for NBFCs, banks offer an LTV of up to 90 per cent, higher by 30 per cent.
According to the HDFC Bank website, loan is available up to 100 per cent of the appraised value of gold. Suppose, you wish to borrow from a bank Rs 1 lakh against gold jewellery, and your jewellery is appraised at Rs 85,000, then you would be eligible to avail of a loan of up to Rs 85,000. So, for those in need of emergency cash, banks would be better than NBFCs as you could borrow a higher amount. All the same, you need to keep in mind your repayment capability.
Also, banks charge a lower rate of interest on the loan. According to apnapaisa.com, NBFCs like Muthoot Finance and Mannapuram Finance charge between 12 and 25 per cent, depending on your credit history. On the other hand, banks like Central Bank and HDFC Bank charge in the range of 12-16 per cent.
Typically, you can avail a loan of Rs 25,000 to Rs 10 lakh depending on the valuation of your jewellery and repay the loan over a period of six to 12 months.