Limitations

Higher interest rate: Gold loan sanctioned by NBFCs is high in interest rates, though in matters of simple documentation and quickness in sanctioning the gold loan, they are matchless.

Difficult to close: Once taken, it is difficult to close. Research indicates that it becomes more of a habit to take more such loans without thinking of repaying the loans taken and payment of monthly interest charged.

Encouraging crime: There are news reports that gold acquired by spurious means (chainsnatching, theft, etc.) often lands as security for gold loan. Borrowers involved never repay as they vanish with loan amount, without bothering about the deposited gold.

Unregulated market: An unregulated market and easy sanction of such gold loans has seen many NBFCs mushrooming with the sole purpose of giving gold loans and run away after collecting enough gold.

Low value of studded jewellery: Jewellery studded with precious stones (like diamonds, emeralds), which are usually of higher value than pure-gold ornaments, do not get their real value from NBFCs or banks. They will deduct the weight of such stones to arrive at the purity of the gold tendered for gold loan. It is estimated that each carat of stone is equal to about six grams of gold – hence a dampener for the ones who have to pledge studded jewellery.