Comparison of Gold Loan Interest Rates by SBI and Other Banks

When it comes to gold loan, there are two types of interest rate offered, i.e. floating and fixed. A floating rate is one that changes from time to time as per the guidelines of the RBI and the financial institution, whereas fixed rates do not change during the loan tenure.

Out of the gold loan providers in India, State Bank of India is one of the banks that offers lowest interest rate, starting at 10.25%.
Comparison of Gold Loan Interest Rates by SBI and Other Banks

The SBI gold loan interest rates are distinct from that of other banks and comparison of those is elucidated below.

Comparison of Gold Loan Interest Rates: SBI and Other Banks/NBFCs

The lowest rate offered by HDFC bank is 9.6%, ICICI bank is 10.5% to 16.5%, Manappuram is 14%, Muthoot is 12%, and Axis Bank is 14.5% to 17%, while SBI charges 10.25% to 11.05% per annum for gold loan.

The processing fee (a percentage charged as fee on total loan amount) of each also differs. It is 0.5%, 0.25% to 1%, and 0.5% to minimum Rs. 250 for HDFC Bank, Muthoot Finance, and State Bank of India, respectively. ICICI Bank and Axis bank charge 1 percent of the loan amount as the processing fees.

Coins of high purity are valued more than gold jewellery. But the coins should not be more than 50 grams, and should have purity of at least 18 carat to 24 carat. SBI and other financial institutions only accept gold coins that are bank-purchased.

The State Bank charges 2.50% above the base rate, which is 12.50% presently. Canara Bank on the other hand charges, 0.25%+Base Rate for gold loans (agriculture purpose) up to Rs. 2 lakhs, while the rate is 2.25%+Base Rate for gold loans (agriculture purpose) between for loan between Rs. 2 lakhs and Rs. 3 lakhs.

What Affects the Gold Loan Interest Rates By Financial Institutions?

Existing customers, women, and agriculturists receive some concession on the rates. Over the years, many players entered the lending sector. Today, every bank/NBFC has a different rate of interest for jewel loan.

Below given are factors that influence interest rates of SBI and other banks/NBFCs in India:
  1. Relationship with SBI: Loyal customers or existing account holders of State Bank, who have a good relationship with the bank in terms of payment track record, can benefit with lower rate of interest than that charged for regular customers.
  2. Loan Tenure: Most of the times, banks and NBFCs charge a higher rate of interest on a short tenure gold loan, than long ones. In SBI, one has a choice of tenure between 3 months and 36 months, which directly influence the interest component to be paid.
  3. Loan Amount: The loan amount may influence the rate of interest. Loan amount is calculated on the basis of the gold weight and purity. SBI offers loan between Rs. 20,000 and Rs. 20 lakhs while many other institutions offer a higher loan amount. Higher the loan amount, more the interest payout and vice-versa.
  4. Loan to Value Ratio: As per RBI guidelines, banks and NBFCs can offer maximum 75 percent of the gold’s value as funds. Financial institutions can offer a loan on gold at a lower LTV as well. LTV influences loan amount, thus the rate of interest. Apart from the rate of interest, the borrower must also consider other charges applied, such as GST, processing fee, penalty charges (if any) etc.
  5. Purpose of the Loan: A jewel loan can be used for any purpose other than speculative and illegal activities. However, for certain persons and professions, the interest rates are discounted. For instance, women customers and farmers are eligible for 1 to 2 percent discount in the standard rate of interest. Agriculturists need to submit proof of agriculture and farming to avail gold loan on discount.

Importance of Comparing Interest Rate before Applying for a Gold Loan

Below-given are reasons for analyzing rate of interest between gold loan providers before sending loan application.
  • Knowledge about Loan Cost: Interest rate, fees, charges etc together will inform one about the total cost of the gold loan. This is why it is important to understand these factors, so as to know how much one has to shell out through the loan tenure.
  • Suitability to Requirement: A gold loan by SBI or other bank may be inexpensive, but will it suit a borrower’s need? Many factors come into play when deciding on a loan scheme. For instance, bank A provides loan at a low interest rate with the tenure is also short, while the customer wants a longer tenure. In such a case, the person has to look for other offers by competitors.
  • Taking Informed Decision: By comparing costs, charges, and interest rates offered by SBI and NBFCs/banks, one can take an informed call about the perfect gold loan scheme. Thus, is important to compare the rates across financial organizations.
The above-mentioned are details about various gold loan interest rates by State Bank of India and other financial organizations, and how to compare the costs of these schemes for picking the right offer for oneself.