SBI has a special deal for gold loan borrowers; should you borrow?

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The State Bank of India is offering 0.5% rebate to eligible gold loan borrowers. Reportedly, the discounted rate is reserved for pensioners and salaried.

The country’s largest public sector bank has fixed a loan to value (LTV) ratio of 75% for the borrowers. This means, 75% of the value of gold can be availed as loan. A minimum of Rs 20,000 loan can be availed against gold while the upper limit stands at Rs 50 lakh for the SBI gold loan facility.

Gold loan versus personal loan

The interest on gold loans starts from 7%. Since gold loans are secured, the interest rates are usually less in comparison to personal loans.

At present, SBI is offering gold loans to the customers at the lowest interest rate of 7.5%. Among other PSU Banks, Punjab & Sind Bank is charging 7-7.5% interest on gold loans; Canara Bank is charging 7.35% and Punjab National Bank levying 8.75% interest. Mannappuram Finance, which is largely into gold loan financing is charging 9.5% interest.

On the contrary, personal loan interest rates at SBI start from 9.6%, while Canara Bank charges 12% or more. The quantum of loan is directly proportional to the borrower’s income. S

For a gold loan, you need to have physical gold or some form of bullion against which a loan can be offered, while personal loans are collateral free. Also for gold loans, it is unlikely that banks will lend over 75% of the value of the pledged gold. In case of gold finance companies, the loan to value is 70% (like in case of Muthoot Finance).

Gold price

The price of gold has fallen over 20% on a year-to-date basis and it is currently ruling below Rs 50,000 per tola (one tola=10 grams) and this has made both banks and gold finance companies extremely wary about increasing the LTV.