Top Things to Know About Gold Loan Interest Rates in India

Gold loans are secured loans that can use gold jewelry or coins as collateral. As per Reserve Bank of India (RBI) rules, lenders can refund up to 75% of the value of your gold. Since the price of gold changes daily, most lenders will determine the value of your gold based on the market price of gold on that day. If the price is high, you may be able to get a higher loan amount for your gold jewelry with favorable terms. The interest rate on a gold loan directly affects the repayment amount.

Therefore, it is important to understand how gold loan interest rates are determined and how to get the lowest gold loan interest rate. The more money you borrow, the higher the interest rate on your gold loan. If your income is stable and high, your interest rate will be lower. The value of your loan directly depends on the amount of gold you own. Interest rates do not change much depending on the purity of the gold.

Major Factors Affecting Gold Loan Interest Rates

Here are several factors that may affect your gold loan interest rates mentioned below:

Loan Amount

Lenders give you a gold loan based on the value of the gold you provide them. The size of the loan affects the amount of interest you pay. As the loan amount increases, so does the interest rate. A typical loan-to-value ratio for lenders is 75%. This means that they will not give you back more than 75% of the value of the gold you give them. The more money you borrow from your lender, the more interest you will have to pay back.

Monthly Payment

Gold loans differ from other personal and business loans in terms of the services required by the borrower. For other loans, the lender will check everything related to your creditworthiness, job, and business plan. However, you only need to meet a few requirements to avail a gold loan. One of the things financial institutions look at is your monthly income. The more money you make; the more lenders will trust you. Lenders charge the lowest gold loan interest rates because they are confident that you will repay the loan. However, if your income is low, lenders may charge higher interest rates.

External reference interest rate for loans

Gold loan interest rates are based on an external reference rate that is linked to the lender's interest rate. All loans approved by banks are tied to an external reference interest rate. When the Reserve Bank of India cut interest rates, they did not change immediately. RBI has asked lenders to link interest rates to external benchmarks. It could be the 10-year government bond yield or the RBI repo rate. This interest rate will affect the interest rate on your gold loan. Interest rates on gold loans change whenever the Reserve Bank of India changes the key interest rate.

Credit Score

In addition to your monthly income, your credit score is also one of the factors that lenders consider when evaluating your trustworthiness. This value reflects your loan repayment habits. The higher your credit score, the more confident lenders are. This also means that the lender will offer you a lower interest rate because it is certain that you will repay the loan and avoid defaulting.

The interest rate on a gold loan directly affects the loan repayment amount and this applies to all loans, not just gold loans. Choosing a lower interest rate means lower repayments. Unlike other types of loans, gold loans provide you with two options of loan repayment apart from EMI. These strategies include regular interest payments and lump sum repayments. However, no matter which option you choose, the interest rate on your gold loan will affect your repayments.

Conclusion

You need to stay updated with the current gold rate today. Check the latest gold prices per gram, ounce, and kilogram. Get real-time updates and trends for informed buying and selling decisions. Before applying for a gold loan, you should first check the interest rate. Most people take gold loans despite the high interest rates because they can get money quickly. Don't rush into taking out a high-interest loan. The higher the interest rate, the higher the amount you have to pay each month.