Important factors that can affect Gold Loan interest rates

Nowadays, gold has transformed from being a precious metal used to craft beautiful jewellery and become a popular investment tool in India. In addition, when facing a financial emergency, for example, a sudden medical emergency, an unplanned business need, etc., you can conveniently apply for a Gold Loan. This covers your expenses and saves you from distress.

Gold Loans

It is a Secured Loan that lets you borrow funds by pledging high-value gold ornaments. Depending on the financial institution you choose, borrowers may secure up to 75% of the total value of the gold pledged. However, when applying for such a Loan, the Gold Loan interest rates become a crucial factor and can significantly impact your finances. Hence, it is essential to understand how these rates are calculated and the important factors that can sway them.

Key factors

Market price

The market price of gold can have a significant effect on the interest rates applied to your Gold Loan. That is if the price of gold is gold is higher, your pledged gold will also have a greater value and vice versa. This may allow your lender to offer a lower interest rate on your Loan since he has a reduced risk for loss.

Monthly income

You can apply for Gold Loans at a reduced rate of interest if you have a stable source of income. This is because your lender has confidence in your ability to repay the borrowed sum of money. On the other hand, if you have a lower income, the lender may charge a higher rate of interest for the Gold Loan.

Credit score

Your CIBIL or credit score reflects your creditworthiness i.e., how likely you are to default on your debt obligations. Hence, a high CIBIL score is an indicator that you have made your repayments on time and without default. Typically, lenders tend to charge a lower rate of interest for people with higher CIBIL scores.

Loan amount

The quality and quantity of gold you pledge to your borrower directly impact your Loan amount. This, in turn, can be a key factor that sways the Gold Loan interest rates since lenders may charge a higher rate of interest if the Loan amount is higher.

Repayment frequency

The frequency of the interest payment on your Gold Loan can also determine its interest rate. That is, you might have to pay a lower rate of interest if you repay the borrowed sum at a higher frequency of instalment payments and vice versa.