A person who is having trouble meeting their financial obligations should seriously consider applying for a loan secured by gold. When applying for a gold loan, customers of banks and other types of financial institutions are required to put up their gold jewelry and other valuables as collateral. As the price of gold jewelry continues to climb, there has been a commensurate increase in the number of people seeking loans secured by gold. When prices are high, you will probably be able to acquire a greater loan amount against your gold jewelry at an attractive gold loan interest rate. This is because the value of your gold jewelry will be higher. Your total amount that needs to be repaid is directly influenced by the interest rates on your gold loan.
It is possible that several creditors will give loans at various gold loan per gram rate. Additionally, it is possible that the rate will vary even for two borrowers borrowing from the same creditor.
As a result, it is critical to have a solid understanding of the factors that go into the calculation of interest rates, as well as the steps you can take to reduce the overall cost of your gold loan. The more you understand about how to calculate the rate of interest on a gold loan, the more you will be able to gain from having the loan made available to you. The following is a rundown of the five key factors to consider when calculating the interest rate on a gold loan:
Loan amount
Gold loan interest rates are highly sensitive to the amount you borrow. The value of the gold jewelry you pledge will serve as collateral for the loan. Loans are frequently approved for amounts between 60% and 90% of the appraised value. A greater interest rate will be applied to the loan if a larger sum is selected. Gold loan interest rates vary, so it’s important to calculate how much money you’ll need and then look at the many options.
Monthly income
In contrast to other types of unsecured loans, such as a personal loan, the requirements for getting a gold loan are more lenient. A gold loan is easy to obtain approval for. However, before settling on the gold loan interest rate, lenders want to investigate your source of income. You can prove your ability to repay EMIs on time to lenders. If you have no other financial commitments, a greater and more consistent salary increases your ability to repay a loan. A lower interest rate will be offered to you on your application for a gold loan since your lender will be confident that you will repay the loan amount and interest in a timely manner and not default on the loan. Both the size of the loan and the interest rate would be impacted negatively by the borrower’s low income.
Ability to Make Repayments
Even though many lenders might not ask for proof of income because the gold loan is guaranteed by security, others might ask for it to evaluate your potential for making payments on the loan. If your monthly income is sufficient, you will also have a larger capacity for repayment, which will enable you to receive the loan at gold loan rates that are more favorable.
Benchmarking Methods
The majority of banks utilize benchmarking to determine interest rates for borrowers. There are two benchmarking types: MCLR-linked lending rate and Repo Rate lending rate. The gold loan interest rates vary from lender to lender based on the benchmarking methodology they use.
For instance, if the Repo Rate decreases by 40 basis points, this will immediately affect the Repo Rate Lending Rate (RLLR). The RLLR must be lowered by forty basis points. In addition, the MCLR-linked loan rate will be decreased by 20 basis points.
Methods of benchmarking affect gold loan interest rates. If your lender’s gold loan interest rates are tied to the RLLR, your EMIs would fluctuate every three months. If they are tied to the MCLR, gold loan rates will fluctuate every six months or a year. The gold lending rates tied to RLLR and MCLR will fluctuate whenever the REpo rates are modified.
In order to make an informed decision when picking a gold loan rate for yourself, you should always examine the benchmarking approach your lender employs.
In India, a gold loan is one of the quickest loans to be sanctioned because the banks hold your gold as collateral in the event of default. Always rely on a lender who provides a low gold loan interest rate, flexible repayment alternatives, and secure storage for your jewelry. In addition to evaluating their interest rates, be well-informed on their terms and conditions to acquire the best deal. To obtain the lowest interest rates on gold loans, read and comprehend the aforementioned elements that determine gold loan interest rates.
