Gold Loan

Important Things You Should Know About Calculating The Gold Loan Interest Rate


Quick and simple loan applications are available to those who need access to cash immediately. How the money will be utilised and how long the loan will be in effect play a role in determining the loan amount. Using unused household gold jewellery as collateral for a short-term loan is a kind of borrowing that has recently gained popularity.

Borrowers will give over their gold jewellery to the lender to be used as security for the gold loan. To meet regulatory requirements, lenders must deduct an amount from the product’s value. This means that the amount they may borrow must be lower than the value of the jewellery in the current market.

Because there is no universally accepted standard for valuing jewellery, gold loans are given based on the worth of the “gold” in the piece after deducting the weight of any stones. This means that the diamond’s value will not be considered if a borrower is pledging gold jewellery.

How Are Gold Loan Interest Rates Calculated?

Gold loans come with a broad range of interest rates set by individual banks and alternative finance firms. Moreover, they use various methods to determine the gold loan interest rate. For example, some loan companies charge interest based on a simple rate while others charge a compound rate.

The interest that borrowers must pay is known as simple interest because it is calculated merely on the principal borrowed. When interest is compounded, however, it is calculated on the original loan amount and the interest accrued on that amount. That’s like paying interest on interest, which is not feasible. Customers should thus take care when selecting a lender that offers a loan at simple interest.

Importance Of Determining Gold Loan Interest Rate

Gold loans come with monthly interest payments on top of the loan’s principal balance. Borrowers have a legal and financial obligation to return their loans on time, including the interest that accrues on them.

But suppose the borrower’s financial situation changes, and they no longer feel comfortable paying the high-interest rate associated with a gold loan. Since a negative influence on credit score results from late or missed interest payments, it is essential to borrow gold at a fair gold loan interest rate. Therefore, even before asking for a gold loan, you must determine how much interest you will be charged.

5 Things To Consider In Calculating Gold Loan Interest Rate

Loan amount

One of the most important elements in deciding the gold loan interest rate is the amount you want. By the book, the loan’s interest rate and the required gold collateral rise with the principal. Interest rates are proportional to the principal borrowed and rise with the loan’s maturity date.

Interest rate type

Most debtors have the false impression that there is just one category of recurrent monthly interest rates. Yet, besides gold interest, a lender may charge other fees for a loan. The lender may levy compound interest (interest on interest), jumping interest (interest that climbs at regular intervals), EMI (interest calculated as a proportion of the principal), or even punitive interest (charged if you have not closed your loan account after maturity). Determining the kind of interest initially is critical.

Loan tenure

The gold loan interest rate is mostly dependent on the loan’s duration. The loan’s length determines how often interest and principal must be paid each month. Assuming everything else is equal, the longer the term of the gold loan, the lower the interest rate will be each month. In light of this, the loan length should be considered while setting the interest rate for a gold loan.

Financial institution

The fees charged by the financial body from whom the gold loan is taken considerably affect interest rates. For instance, the interest rate would likely be higher if the company’s gold loan has any extra fees. Most NBFCs do not impose processing or appraisal fees, although banks often do (between 1% and 2%). In light of this, the costs and fees associated with gold loans are included in the gold loan interest rate.

Loan calculators

Most people don’t know of loan calculators, which can be used to determine the interest rates on gold loans, but they exist. Borrowers may use loan calculators on the internet to determine their effective interest rate, based on various factors such as their loan amount, the value of their gold, and the loan length.

Factors Affecting Gold Loan Interest Rate

While the value of gold jewellery is significant in determining the loan amount, several other elements could alter the actual interest rate being charged for the same gold loan.

Actual interest rates change, according to the loan amount, period, and the quality of the gold used as security. Back-end customisation considers other factors, including the borrower’s credit score, benchmarking, and income.

Summing Up

The gold loan interest rate depends on several factors. Considerations include the loan amount, the borrower’s credit history and score, the borrower’s monthly income, industry standards, and any other collateral used to secure the loan. Lenders might charge drastically varying interest rates for the same amount of gold jewellery as collateral, depending on various criteria relating to the borrower. To learn more information regarding gold loan interest rates, you must visit Piramal Finance. They will provide you with all the information you need.