Though it varies from lender to lender, the gold loan interest rate may range between 7.40% and 14.50%. It may be higher or lower depending on our gold purity, and other requirements that lenders may have.
The bigger the loan amount, the higher the interest rate you have to pay. A regular and high income can help you bag a lower interest rate. The loan value is a direct function of the weight of your gold ornament.
If the gold ornaments are studded with precious stones, the weight of such added pieces will be excluded during the valuation process to determine the value of the gold pledged.
The purity of the gold doesn’t influence the rate of interest to a large extent. “There is no direct correlation between the purity of gold and the rate of interest. If you were to take out a loan against 18-carat gold and use the gold itself as collateral for the loan, you would be eligible for a gold loan.
Factors Affecting Gold Loan Interest Rates
Price of gold in the market
If the price of gold is high on the market, the value of the gold ornaments or coins that you are pledging will also be high as a result of this. If you are unable, for whatever reason, to make the equated monthly instalments (EMIs), the lender can easily recover the outstanding amount by selling or auctioning the gold ornaments. As a result, the lender will offer you a lower interest rate in these circumstances because the risk associated with the loan is low.
If the rate of inflation is high, the value of currency depreciates and, hence, people tend to accumulate more gold. Gold acts as a hedge against inflationary conditions, especially when they persist for a longer period. This, in turn, pushes the price of gold higher, and at such a time, if you wish to avail of a gold loan, you may get lower interest rates from lenders.
Relationship with the Bank
Most lenders offer gold loans to their existing customers, though, in some cases, individuals who have no history with the bank can also avail of gold loans. However, existing customers of banks/lending institutions are typically in a better position to negotiate for a lower interest rate.
The amount of money that an individual is eligible for as a maximum loan is determined by the weight of the gold jewellery as well as the current price of the yellow metal. However, the quantity of the loan that one should take out is an important question to think about since larger loan amounts result in greater interest rates.
You shouldn’t take out a larger loan just because you have the ability to borrow a greater quantity of money since doing so would cause either the cost of servicing the loan or the interest rate on the loan to increase.
While a gold loan is availed against a security, lenders still bake in the monthly income of the borrower to ascertain their repayment capacity and tune their rate of interest accordingly. If a borrower has a reasonably high monthly cash flow as salary or other source of income, one can benefit from a lower interest rate for the same gold loan.
Credit Rating (score)
Because the lender’s major concern is the value of the security, a person’s credit score is not a factor in determining whether or not they are granted a gold loan. Despite this, the credit score is still relevant to the procedure since it has an effect on the interest rate that the lender is willing to provide. Customers that have a credit score of 700 or above are often seen as desirable clients since they have a greater likelihood of paying back loans.
Another aspect that affects the interest rate is external benchmarking. If a lender follows external benchmarking with the Reserve Bank of India’s repo rate-linked rate (RRLR), every time the central bank tightens its monetary policy, the interest rate being charged for a gold loan processing fee moves up.
The gold loan interest rate may run anywhere from 7.40% to 14.50%, although this number might change depending on the lender. It might be greater or lower depending on the quality of our gold and any other conditions that potential lenders may have.