Gold loans have been growing in popularity as a convenient way to raise some quick credit. These loans are easy to obtain as lenders don’t consider the borrower’s credit profile for eligibility. They are also disbursed quickly without much documentation, making them an excellent choice for addressing financial emergencies.
However, there are some important considerations that borrowers should be aware of. One of the most critical aspects of a gold loan is the interest rate. Though this type of loan has lower interest rates as compared to others, finding the lowest rate can save you some money and strengthen your finances.
Gold Loan Interest Rates
Every bank and financial institution has a different interest rate on gold loans. The interest generally ranges between 7% and 29%, depending on several factors. As gold loans are secured, lenders offer lower rates than other types of financing options. Such affordable interest rates make these loans a viable option for those who want to address emergency expenses.
Banks generally offer lower interest rates on gold loans as compared to financing institutions. Some of the non-banking finance companies, however, offer great deals on these secured loans. Thorough research and comparison of the options available in the market can help you find the lowest gold loan interest rate that makes your loan affordable.
Factors Affecting Gold Loan Interest Rates
Interest rates on loan against gold can vary depending on several factors lenders take into consideration. However, the most important of these factors are market price and inflation.
When inflation is high in an economy, the currency value goes down and people start investing in gold as a hedge against rising inflation, particularly when it lasts long. The price of gold tends to increase at such times and individuals can get lower interest rates on loans against their gold assets.
Market Price of Gold
The interest rate offered by lenders greatly depends on the current market price of gold. When the price is high, the value of jewellery and coins pledged by borrowers is also high. This means the lenders have a lower risk associated with the loan and they offer competitive interest rates.
So, when the gold price is high, individuals can expect to find some of the lowest gold loan interest rates in India. Apart from this, banks and companies offer reduced rates to existing customers. Credit scores can also sometimes affect the rate of interest. Having a good credit profile improves your chances of getting more flexible repayment options and lower interest payments.
Gold Loan Rates and Comparison
Banks generally offer lower interest rates on gold loans as compared to financial institutions. Punjab National Bank offers gold loans at 8.75%-9%, SBI offers 7.5% and Punjab & Sind Bank offers gold loans at 7%-7.5%, as stated by loan comparison websites.
NBFCs (Non-Banking Financial Companies) offer higher rates ranging from 9% to up to 25% depending on the company you select. For example, Muthoot Finance offers interest rates up to 29% and Manappuram Finance charges anywhere between 12%-29% for gold loans. IIFL Finance, on the other hand, offers loans against gold at 9.25%-24%. Bajaj Finserv offers gold loans at interest rates starting from 12% per annum.
However, it is important to note that borrowers should consider other factors as well before choosing a lender. A lower rate of interest does not always mean the best deal. For example, most banks generally offer gold loans for a tenor of one year. Finance companies like Manappuram Finance have a short tenor of 3-6 months under most schemes.
Some lenders like Bandhan Bank and Kotak Mahindra Bank offer tenors of up to 4-5 years while Bajaj Finserv offers flexible, convenient gold loans that you can renew every year. So, if you need money for a longer duration, low interest rates won’t appeal much. Apart from this, borrowers also appreciate the flexibility of repayment options when paying back their gold loan.
In short, there are several factors to be considered before applying for a gold loan. See what terms and offerings different lenders have and compare them to find out what works the best for your needs and conditions. The lowest gold loan interest rate may not always be everybody’s requirement. The best gold loan is a combination of competitive interest rates, flexible repayment options, a higher loan-to-value ratio, and the credibility of the lender.
How is Interest Calculated and Charged?
The interest on a gold loan is calculated by subtracting the principal loan amount from the total amount to be paid. An online EMI calculator can help you quickly calculate the amount of interest you need to pay at the end of the gold loan tenor. Such a tool helps you calculate the EMI amount so that you can plan your repayment effectively.
Different lenders have different terms when it comes to repaying the gold loan. Some lenders give you the option to pay the interest on the loan every month and the amount at the end of the tenor. You can even choose from quarterly and monthly payment options for the interest. Some others have an EMI repayment option where you pay a part of the amount and interest every month during the tenor.
Sometimes, the lender may ask for an interest payment at the beginning of the loan tenor. It is best to discuss with the lender, the available repayment options to make sure you can pay back the loan conveniently without disturbing your budget and future finances.