What Is Gold Loan and Understanding the Gold Loan Interest Rates?
The Indian gold loan market is evolving gradually, as more individuals consider gold financing to meet their small and big-ticket expenses. This secured financing is easy to obtain, entails easy eligibility parameters and comes with lower interest rates. Additionally, gold loans feature no end-use restrictions, allowing borrowers to utilise the corpus for various financial needs.
However, before making a borrowing decision, it is crucial for prospective borrowers to know all about gold loan interest rate. This will help them make conscious decisions and choose a loan offer that best suits their requirements.
Overview of Gold Loans
Gold loans are secured loans offered by banks and financial institutions against gold items. In simple terms, you need to pledge your gold items to a lender in order to obtain the corpus. The loan amount you obtain depends on the purity and weight of gold, which is determine through physical evaluation by bank representatives.
You may choose to repay your loan amount either through regular EMI payments or choose one of these options:
- Bullet repayment
- Pay interest up front and principal at the end of loan tenure
- Make partial payments of interest and principal component
Note that most gold loans come with repayment tenure of 12 months. However, some banks and financial institutions offer an extended tenure upon conversation.
Factors Affecting Gold Loan Interest Rate
When you apply for a gold loan, a lender considers various factors to decide the loan rate. These include:
- Loan amount
The loan amount you borrow has a direct impact on your gold loan interest rate. In simple words, the loan corpus is directly proportional to the rate of interest. The higher the loan amount, the more you need to pay as interest. Thus, before borrowing, consider assessing the loan amount and borrow judiciously.
- Gold’s market price
The market value of gold also affects the interest rate on gold loans. In this regard, if the market price of gold is high, so will the value of the gold articles you are pledging. The total loan amount is determined by the value of the gold articles you have pledged. Lenders typically offer 75% of your gold's total market value. Since the risk is low, lenders will offer you a lower interest rate in such cases. If you are unable to pay the equated monthly instalments within the tenure, the lender can simply auction the gold articles to recover the remaining amount.
- Benchmark rates
The external benchmark to which the bank or financial institution’s interest rate is linked determines your gold loan interest rate. When the RBI raises repo rates, lenders quickly increase interest rates as well. Thus, as the central bank’s repo rate increases, borrowers would have to pay more interest towards their gold loans.
- Credit score
Being secured financing, banks and financial institutions do not consider credit score as a primary parameter for gold financing. Thus, you may be able to obtain a gold loan with a low credit score, since the corpus is secured against gold items. However, note that maintaining a good credit score can help you negotiate better terms with the lenders, aiding you in obtaining a loan at lower rate of interest.
The gold loan interest ratevaries from one lender to another. Thus, it is crucial to conduct thorough research before making a borrowing decision. In this regard, you can visit Bajaj MARKETS, which is a diversified marketplace housing various loan offers extended by leading banks and financial institutions. You can compare these offers and choose the one that best suits your requirements and repayment capacity.
Steps to Apply for a Gold Loan
With the advent of technology, the process to apply for a gold loan has become extremely simple and convenient. You simply need to follow these steps online:
Step 1: Visit the website of your preferred lender and navigate to ‘Gold Loan’ option
Step 2: Click on ‘Apply Now’
Step 3: Fill in the application form with necessary details
Step 4: Enter the gold weight or loan amount you require
Upon completing these steps, the bank or financial institution will reach out to you regarding further steps. Upon completion of the physical gold evaluation, you will quickly receive the intended corpus.
Note that some banks and financial institutions only accept gold jewellery of 22 carats. Thus, consider talking with your lender about this cause beforehand.
Obtaining a gold loan is a viable option, considering the low gold loan interest rate and quick approval and disbursal time. At the same time, you should consider assessing your overall EMI obligation beforehand by using an online EMI calculator. This will help you repay your loan in a disciplined and financially sound way.
