For decades, gold has been hailed as a safe asset one can fall back on during a cash crunch. While earlier this meant selling the asset in the market, now you can easily assess affordable gold loans with simple payment terms. Both banks and NBFCs offer gold loans in India with amounts ranging from Rs. 1,500 to Rs. 5 Crores. As a secured loan, gold loan interest rates can vary from 7.20%-29% p.a., depending on the lender you pick. Here’s an overview of the latest interest rates from leading lenders:
These gold loan interest rates are crucial as they affect the total amount due for repayment. So, the higher your interest rates, the more your EMI burden. Thus, if you need immediate funds and are considering a gold loan, you should keep this guide on gold loan interest rates handy.
Factors Affecting Gold Loan Interest Rates
The loan amount sanctioned will depend on the value (both quantity and carat) of the gold ornaments you pledge as security for the loan. Depending on the lender you pick, the sanctioned amount can vary from 60%-90% of the mortgaged gold. While earlier, the RBI capped the LTV (loan-to-value) ratio at 75%, this was increased to 90% in 2020. However, you should remember that borrowing a higher amount will also increase your interest payments, as gold loan interest rates are proportional to the loan amount.
While gold loans are secured loans, lenders might still want to assess your monthly income to gauge your repayment capacity. To this end, they might verify your monthly income details. A high monthly income ensures timely payments, qualifying you for lower gold loan interest rates. A low monthly income can hike gold loan rates and lower the sanctioned loan amount.
Unlike unsecured loans, where your CIBIL score is used to determine eligibility, here it is used to ascertain the applicable gold loan interest rate. A good credit score suggests responsible repayment behaviour and creditworthiness, placing you as a low-risk borrower. Thus, if you have a CIBIL score of 750 and above, you can avail of gold loans at a discounted interest rate.
Gold loan interest rates are also affected by market-linked factors like currency depreciation, inflation, changes in demand and supply, and, of course, the price of gold. For instance, with a rise in gold prices, lenders may offer lower interest rates as higher prices can hedge the lending risks involved.
Lenders use two types of benchmarking methods to determine gold loan interest rates - the MCLR-linked lending rate and the Repo-linked lending rate. Depending on the method used by your lender, your gold loan rates will vary. For instance, if the lender follows the external RLLR benchmarking system, your gold loan interest rate will rise every time the RBI constricts its monetary policy.
Pointers to Remember When Assessing Gold Loan Interest Rates
If you want to get the best gold loan interest rate, you should always do your due diligence and compare lenders. Moreover, apart from the interest rates, you should also check the processing fees, loan terms, and repayment duration offered by different lenders.
- Use a Gold Loan Calculator
Apart from gold loan interest rates, you also have to assess the loan's repayment tenure and EMI burden. Gold loans come with repayment tenures ranging from 3 months to 3 years. While longer tenures spell higher interest burdens, while a short tenure can make repayment difficult. To find a tenure best suited for you, you can use gold loan calculators available on lender sites. Gold loan calculators ensure that your monthly EMI burden and total interest cost remain within manageable thresholds.
- Review the Terms of the Loan
While interest rates will affect the total cost of the loan, so will the add-on fringe payments like late fees and prepayment charges. For instance, some lenders can charge a foreclosure fee of up to 3% of the outstanding balance if you decide to prepay the loan. Similarly, banks and NBFCs also levy penal charges on missed payments. This penalty rate can vary from 3% to a whopping 25%. Thus, reviewing these terms before signing on the dotted line is essential.
While some lenders might be willing to offer gold loans with low interest rates, you should always pick a reliable lender. Opting for an RBI-registered bank or NBFC ensures that your valuable gold deposits remain in safe hands. Moreover, while you're at it, you should also review the lender’s credit ratings to ensure that they are trustworthy.
Summing It Up
Gold loan interest rates are key to making repayments affordable. The higher these rates, the more your monthly EMIs. The factors listed in the guide explain why the same lender might charge different rates to different customers. Once you understand how gold loan rates are determined, securing one is relatively easy and hassle-free. Moreover, with gold loan calculators being easily available online, you can compare rates and chalk out a solid repayment plan that doesn’t overburden your pockets.
