Arjit Chalmela
Arjit Chalmela
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Decoding Gold Loan interest calculation

For generations now, buying gold is advocated. It is the finest investment to make for the incredible value it offers. The biggest plus point of gold is it is a crisis commodity. During a geopolitical crisis, gold assures financial security for you and your loved ones. However, it is not necessary that you need to sell your gold ornaments to get the required amount. You can apply for a Loan instead.

Gold Loan is a Secured Loan. You pledge your gold ornaments to secure the Loan amount. Most leading banks offer 80% of your gold ornaments value as the Loan amount. You can avail the Loan for an attractive interest rate and flexible repayment tenure. The following are various factors that influence Gold Loan interest calculation:

Credit score

The bank checks your credit score to determine your credibility as a borrower. A credit score works in your favour. It helps you obtain a lower interest rate and negotiate better repayment terms. A credit score of 750 and more is a must for Loan approvals. Make timely payments and reduce your credit utilisation to improve your credit scores.

Monthly income

Every bank considers your repayment capacity for Loan approval and offering subsequent interest rate. A higher monthly income translates to a good repayment capacity. This makes the bank confident that you will make timely repayments and charge you a fair interest rate. Your monthly income influences the maximum Loan amount you can avail. A higher monthly income makes you eligible to avail a more significant Gold Loan amount.

Here, your debt-to-income ratio is also considered. If you have a high ratio, it will negatively impact your Loan application. In such a case, the bank becomes highly doubtful of your repayment capacity. Due to this, they may charge you a higher interest rate or reject your Loan request altogether.

Principal amount

The Loan amount you wish to avail of directly impacts the interest calculation. A significant Loan amount involves a higher degree of credit risk. Hence, the bank charges a higher interest rate and vice-versa. Think carefully about the Loan amount you want to apply for. Assess your financial requirement and affordability to determine a suitable Loan amount.


There are two Gold Loan interest rates benchmarks: Marginal Costs of Funds Based Lending Rate and the Reserve Bank of India’s Repo Rate. Your bank may choose either. When the RBI changes the repo rate, it translates to a change in the bank’s interest rate offering. Typically, when RBI’s repo rate is considered the benchmark, you can expect your EMI to change every three months.

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