the entire device means that pair-breaking in Nb leads, capacitive pads, and readout resonators can be a major source of decoherence. The established contributors are surface oxides and hydroxides, as well as absorbed hydrogen and oxygen. Metal encapsulation of freshly grown surfaces with non-oxidizing metals, preferably without breaking the vacuum, is a successful strategy to mitigate these issues. While the positive effects of encapsulation are undeniable, it is important to understand its impact on the macroscopic behavior of niobium films. We present a comprehensive study of the bulk superconducting properties of Nb thin films encapsulated with gold and palladium/gold, and compare them to those of bare Nb films. Magneto-optical imaging, magnetization, resistivity, and London and Campbell penetration depth measurements reveal significant differences in encapsulated samples. Both sputtered, and epitaxial Au-capped films exhibit the highest residual resistivity ratio and superconducting transition temperature, as well as the lowest upper critical field, London penetration depth, and critical current. These results are in good agreement with the microscopic theory of anisotropic normal and superconducting states of Nb. We conclude that pair-breaking in the bulk of niobium films, driven by disorder throughout the film rather than just at the surface, is a significant source of quantum decoherence in transmons. We also conclude that gold capping not only passivates the surface but also affects the properties of the entire film, significantly reducing the scattering rate due to defects likely induced by surface diffusion if the film is not protected immediately after fabrication.