Gold loans are increasingly becoming a popular choice for borrowers in India. Driven by rising gold prices and competitive loan terms, this financing option offers a valuable solution for various financial needs.

Here’s a comparative analysis of gold loan interest rates offered by major providers and the factors driving the surge in gold loan demand:

Gold loan market overview

According to a CRISIL Ratings report, there was a 20% increase in gold loan demand in June 2024 compared to May 2024.

Additionally, the number of loans disbursed in June was 12% higher than the average monthly loans of the previous quarter.

Non-Banking Financial Companies (NBFCs) dominate this market, managing 90% of the total assets under management (AUM).

These NBFCs have adeptly navigated the risks associated with gold price fluctuations by maintaining a conservative Loan-to-Value (LTV) ratio of 60-65%.

This strategy protects them from potential losses if gold prices decline.

Gold prices and loan terms

Gold loan prices rise has made gold loans more appealing.

The LTV ratio has increased from 60% in 2012 to 75% currently, reflecting the higher value of gold.

Mehak Srivastava, Head of Marketing at SahiBandhu, points out, “The higher gold value enhances the loan-to-value ratio, allowing borrowers to access more funds against their gold assets. This, coupled with low-interest rates and minimal credit checks, makes gold loans a compelling choice.”

Interest rates comparison

Lender	Interest rate range	Minimum loan amount	Maximum loan amount	Tenure
Manappuram Finance	9.90% p.a. to 26% p.a.	₹ 1,000	No upper limit	6 months to 12 months
Muthoot Finance	10.5% p.a. to 22% p.a.	₹ 1,500	No upper limit	12 months onwards
SBI	8.70% p.a.	₹ 20,000	₹50 lakh	Up to 36 months
HDFC Bank	11% p.a. to 16% p.a.	₹25,000 (₹10,000 rural)	₹1 crore	3 to 24 months
Axis Bank	17% p.a. onwards	₹ 25,001	₹25 lakh	6 to 36 months
Federal Bank	8.99% p.a. onwards	₹ 1,000	₹1.5 crore	Varies by lender
Kotak Mahindra Bank	8% p.a. to 24% p.a.	₹ 20,000	₹1.5 crore	Up to 4 years
Canara Bank	9.60% p.a.	₹ 5,000	₹35 lakh	12 to 24 months
Bank of Baroda (BoB)	9.15% p.a. onwards	₹ 5,000	₹50 lakh	12 to 36 months
Central Bank of India	8.45% p.a. to 8.55% p.a.	₹ 10,000	₹40 lakh	Up to 12 months
Indian Bank	8.65% p.a. to 10.40% p.a.	₹ 25,000	₹10 lakh	Up to 12 months

(Source: Bankbazaar)

SBI offers one of the most competitive rates in the market at 8.70% per annum.

This rate applies to loans ranging from ₹20,000 to ₹50 lakh, with tenures extending up to 36 months.

Central Bank of India follows closely with rates between 8.45% to 8.55% per annum.

Indian Bank also provides attractive rates ranging from 8.65% to 10.40% per annum.

On the higher end, lenders like Axis Bank and India Infoline (IIFL) offer interest rates that start from 17% p.a. and 11.88% p.a., respectively.

While these rates are higher, they may be accompanied by more flexible loan terms or other features.

Most providers offer a wide range of loan amounts, from as low as ₹1,000 to as high as ₹1.5 crore.

The tenure varies, with options available from as short as 3 months to as long as 4 years, depending on the lender.

Choosing the right gold loan provider

When choosing a gold loan provider, one should consider the following factors beyond just the interest rates:

Loan-to-Value (LTV) Ratio: This is the amount of loan borrowers can get against the value of your gold. The Reserve Bank of India (RBI) mandates a maximum LTV ratio of 75%, but some lenders might offer lower ratios. Higher LTV ratios can maximise the loan amount.

Processing fees: Banks and NBFCs often charge processing fees that can range from 0.25% to 1% of the loan amount. It’s essential to factor these fees into the total cost of the loan.

Prepayment charges: Some lenders charge a fee if borrowers want to repay the loan before the end of the tenure.

If borrowers anticipate the possibility of early repayment, they should look for a lender that offers prepayment without penalties.