Bank Vs NBFC: Which is the Best?
Comparison between the 2 is done to rule out the one which offers Lowest Interest Rates and Maximum convenience to the Borrower for availing Gold Loan.
Banks are financial institutions which are regulated and are licensed by Reserve Bank of India (RBI) to receive deposits and offer loans. They also offer services like issuing of cheques and demand drafts. provide financial services such as wealth management services and currency exchange. Banks include both public and private sector banks like State Bank of India, Punjab National bank, ICICI Bank, HDFC Bank etc.
NBFCs are financial institutions that are allowed to lend and make investments like that of banks but do not hold banking license and are not allowed to :
- accept demand deposits
- do not form part of the payment and settlement system and cannot issue cheques drawn on itself
- deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
NBFC include Muthoot Finance, Mannapuram Gold Loan, Muthoot Fincorp, IIFL, Capital First etc. those offers Gold Loans.
Nowadays, many people find themselves in a dilemma whether to choose Bank or NBFC for taking a Gold Loan. There are certain factors and risks associated which must be considered by you while making a Decision.
We, at GoldLoanBazaar.com, have conducted detailed research and analysis on ” Bank vs NBFC ” which may help you to get out of the dilemma and make the right choice based on the factors stated below:
1) Interest Rates:
The rate of interest is one of the main aspects of all types of loans. NBFC usually charge a higher rate of Interest as the cost of funds for NBFC is higher and they are not authorized to accept funds in form of Demand Deposits. The Rate of Interest charged by Banks is much lower as Banks have got access to low-cost funds that they accept in form of deposits from the public. Also, there is a high risk of defaults in case of NBFC, so they charge higher interest rates to offset the unforeseen losses. You can save your hard earned money by Comparing Gold Loan Interest Rates and making the decision accordingly.
Loan to Value ratio, popularly called as LTV, is usually less in case of NBFC. As per RBI guidelines, NBFC is allowed to provide up to 75% of LTV of Gold pledged as collateral. This is mainly because of the high risk of default in case of NBFC. Whereas, banks offer higher Loan to Value (LTV ) which may be as high as 85 %.
3) Time Taken for Gold Loan Disbursement:
Gold Loan in 2 or 5 or 10 minutes is none other than a myth or a marketing Gimmick. It is most commonly adopted by the NBFC to lure customers for getting quicker and faster loans. In practicality, it’s impossible to evaluate the gold, its processing and loan disbursement in such a short span of time. You must not get flattered by such practices and offers.
But indeed, most banks and NBFC usually takes around 30 minutes to a few hours. It depends on the fulfillment of their eligibility criteria and the documents required to avail the loan. Needless to say, the Gold loan is the easiest and fastest way to get liquidity as compared to its most sought alternative i.e. personal loan.
4) Disbursement of Cash:
The banks do not pay in cash for the loan amount sanctioned by them. All the sanctioned loan amount is transferred to Borrowers bank account either by the way of Cheque or Account transfer or NEFT/RTGS as desired by the Borrower. But NBFC is allowed to disburse gold loans only up to Rs 20,000 in form of cash(as per RBI guidelines. Earlier it was Rs 1,00,000). For loans amounting above Rs 20,000, NBFC also goes cashless. They transfer loan amount either by the way of Cheque or NEFT/RTGS directly in Borrowers Bank account. This move is in line with the rules issued under the Income-tax Act.
5) Bank Vs NBFC Regulation:
All the banks are regulated by RBI whereas NBFC is a company registered and regulated under the Companies Act, 1956.
6) Gold to be Pledged:
As per RBI guidelines, Banks are only allowed to accept Gold Jewellery and Gold Coins (only up to 50 grams and of 99.99 % purity issued by Banks only in India ). Whereas NBFC is only entitled to offer Loans against Gold Jewellery only. NBFC is not allowed to offer Loans against Gold Coins.
7) Carat Requirement:
Minimum carat requirement in case of both banks and NBFC is 18 ct (75 % Gold Purity ) to 24 ct. Jewelry below 18 carats is not considered eligible for Gold Loan. Pledging spurious or fake Gold Ornaments for taking Loan is a punishable offense under IPC. This could end you up in Jail.
8) Gold Loans for Agriculture Purposes:
Banks provide special interest rates which are usually lower as compared to Normal Interest rates for Agriculture Gold Loans. Here, the borrower has to provide the proof of Landholding to get benefits. Concessional Loans are also offered to senior citizens and Women. Whereas, most of the NBFC does not offer any concessional or special interest rates for such Loans.
On the Basis of the above factors, one can easily differentiate between Bank vs NBFC and make the decision accordingly.