Understanding Gold Loans and Interest Rates

Obtaining a gold loan can be highly beneficial for someone requiring financial assistance. The interest rate is one of the most important factors to look for when getting a gold loan. The higher the risk, the more interest you pay. The interest charged on a gold loan is known as the gold loan interest rate.

The gold loan interest rate for your loan will vary depending on several variables. The purity of the gold you give the borrower and even the state of the market will determine the interest rate.

How Can One Obtain a Gold Loan?

You must follow these procedures to obtain a gold loan:

• Get your gold to the designated bank or gold lending institution. The purity and weight of the gold will be examined by the lender.
• You will be informed of the precise amount of the loan once they have calculated the total value of your gold.
• To obtain a gold loan, you must also provide certain documents. These include your passport, driver’s license, or Aadhaar card.

Gold items between 18 and 24 carats can be pledged as collateral or security by borrowers. You can get in touch with any bank or non-banking financial institution for the same.

Factors to Consider When Applying for a Gold Loan

Below are some factors to keep in mind while applying for a gold loan:

Monthly Earnings

The criteria for gold loans differ from those for other personal and commercial loans. When you apply for a gold loan, the lender will thoroughly verify your details, including your credit history, job history, and company strategy. There are, however, relatively fewer requirements to qualify for a gold loan. Your monthly salary is one of the primary factors a lender will consider. The higher the salary, the lower the gold loan interest rate that will be charged. It is because the lender is confident you will repay the gold loan on time.

Credit Score

To determine your credibility, your lender will also look at your credit score. Credit determines how you handle debt repayment. The higher your credit score, the more confident lenders are that you won’t default. Additionally, since you are certain to repay the loan on time, the lender will likely charge you a lower gold loan interest rate.

Loan Amount

The quality and purity of the gold you pledge will determine how much money you can borrow. Additionally, the value of the loan you receive impacts the gold loan interest rate you pay. An increase in the loan amount leads to a rise in interest rates. The typical loan-to-value ratio for lenders is 75%. In other words, they will only pay you up to 75% of the value of the gold that you provide them. The more you borrow from the lender, the more interest you will have to pay.

Gold Loan Interest Rate Based on External Standards

The gold loan interest rate you pay will be determined by external standards to which the lender’s interest rate is connected. The lender would promptly raise interest rates when the Reserve Bank of India raised policy rates. However, the interest rates gradually altered after the Reserve Bank of India reduced rates. 

Lenders were asked by the RBI to base their interest rates on an external benchmark. It could be the RBI’s repo rate or the yield on 10-year government bonds. The interest rates on gold loans will be impacted by that rate. The interest rate charged on a gold loan will fluctuate along with changes to the RBI’s policy rates.

How to Choose an Affordable Gold Loan Plan

Here are some factors to keep in mind before applying for a gold loan:

Carefully Read the Terms and Conditions 

Banks often raise their interest rates every month as a result of late payments, time duration, or other factors. The sudden increase in interest is likely to result in you paying a high-interest rate. Therefore, you must carefully read the terms and conditions to prevent these situations.

Don’t Just Look at the Interest Rate But at the Total Cost of the Loan

Avoid being drawn in by the lender’s exclusive gold loan interest rate. Check the fees and interest rate, as well as any other charges. You can also use online calculators to determine the overall cost of the loan over its term.

Compare Between Different Lenders

Choose a few reputable banks and lenders, then evaluate the gold loan interest rate and choose the best deal. Additionally, several lenders provide an online calculator to compute the gold loan interest rate. 

How Will Your Repayment Amount Be Affected by Interest Rates on Gold Loans?

Your repayment amount will directly depend on interest rates, which apply to all loans. The repayment value will be less if you choose to pay lower interest rates. Unlike other loans, a gold loan offers you two more repayment options in addition to the EMI. These strategies include periodic interest payments and bullet repayment. However, the gold loan interest rate will affect the repayment amount regardless of the method of repayment you select.

Conclusion

Obtaining a gold loan is a simple process. It is one of the quickest loans to be approved since banks use your gold as collateral in the event of a default. Before applying for a gold loan, you should check its interest rate. The main reason most people apply for a gold loan is due to its quick processing times, despite its high interest rate.

It is best to avoid rushing into a gold loan with a high rate of interest. The higher the gold loan interest rate, the larger the EMI you will be required to pay.

Check out the blog posts and articles on the Piramal Finance website. Business owners and professionals can also find customized loan options there.