Know About Best Rate For Gold Loans

Gold is one of the popular options among Indians to tide over a financial crisis. With the current higher market value of gold jewelry, demand for gold loans has substantially increased. Most banks and non-banking financial institutions offer gold loans to assist borrowers to manage their finances without putting any burden on their finances. Depending on your gold, you could get a higher loan amount at the lowest interest rate.

However, getting the lowest interest rate depends on factors, such as monthly income, loan amount, credit score, current financial obligations, etc. For you to secure a lower rate, you must convince your lender that you meet their eligibility criteria and have enough income to repay the loan without any delays. You can also determine your interest rate based on your affordability through a gold loan calculator.

Here are the top factors affecting gold loan interest rates:

Loan Amount

The loan amount plays a crucial role in determining your gold loan rates. It depends on the overall value of the gold you wish to pledge. As the gold rates are at an all-time high, you are eligible to get a higher loan amount. Lenders usually offer between 70% to 90% of the gold items’ value as a loan.

However, it is worth noting that the higher your loan amount, the higher the interest rate you will have to pay. Lenders usually charge a higher interest rate on loan amounts greater than Rs. 5 lakhs to justify the risks involved. So, while applying for a loan, it would be wise to assess your situation and choose a loan amount that fits your needs.

Monthly Income

A gold loan is a secured loan, due to which the eligibility criteria are kept a bare minimum by the lenders. You will not have much difficulty in securing a loan from your lender. However, before deciding your interest rate, your lender does check your monthly income to determine your repayment capacity. The higher your income, the better your chances of securing a lower interest rate, provided you do not have any current financial obligations, such as credit cards and loans.

So, if you wish to secure a lower interest rate, you will need to show all sources of income to your lender. Prove to your lender that you can repay the loan without any delays or defaults.

Comparison Of Lenders In The Market

Not all lenders have similar requirements for getting the lowest gold loan interest rate. Therefore, it is imperative to shop around and compare different lenders. This way, you can choose a loan lender that offers the lowest interest rates. So, before applying for a gold loan, it is advisable to explore your options in the market and then make your decision. Keep in mind that while choosing your EMI, the amount should not cross more than 60% of your monthly income.

Credit Score

The credit score is one of the vital factors affecting your gold loan interest rate.  It contains information about your credit history, length of credit history, credit utilization, credit mix, and new credit card. Your lender will check your credit score to determine whether you can repay the loan on time.

A credit score higher than 750 indicates good repayment behavior and creditworthiness. In such cases, you not only qualify for a loan but will also get a lower gold loan rate compared to borrowers with lower credit scores.

Also Read: Important Points Which Affect Your Home Loan Interest Rate in India

Benchmarking Method Used By Lenders

Lenders follow two types of benchmarking methods to determine the gold loan rates – MCLR Linked Lending Rate and Repo Rate Linked Lending Rate. The loan rates keep changing depending on the benchmarking method used by your lender. If the RBI decides to reduce 40 basis points in the Repo Rate, the same 40 basis points reduction will reflect in RLLR. If your gold loan rate is linked to RLLR, it will change once every three months, and the changes will reflect on your EMI amount. As with MCLR, the loan rate is fixed for a set period, such as six months or one year.

Whenever the Reserve Bank of India (RBI) changes its repo rate, your gold loan rate will change too if your lender follows the RLLR benchmarking method. So, when choosing a gold loan rate for yourself, it would be wise to check your lender’s benchmarking method to make a wise decision.

In Short

If you wish to get the lowest interest rate on your gold loan, you must convince your lender that you have the repayment capacity to pay off your loan without any delays. Before applying for a loan, you can use a gold loan calculator to determine an affordable interest rate for yourself.