4 Interesting Facts About Gold Loan Interest Rates

A gold loan is a type of loan that uses gold as collateral. It is a popular form of financing in India, where it is known as "the gold loan business." For Indians, a gold loan is not a novel concept; it has been the primary source of lending and raising funds. Its origins can be traced back several centuries, when it was the primary means of barter and trade. India was, and continues to be, the world's largest consumer of gold jewellery, with Kerala and Tamil Nadu topping the list of Indian states.
Here are some more interesting facts about gold loans, including their trends and the highest gold loan rate of interest offered.

Origins Of Gold Loan In India

The origin of gold loans traces back to south India. Moneylenders such as the Tamil Nadu Chettiars, the Shroffs and Marwaris from other areas of India, and landowners pan India have traditionally granted locals money against their gold for special occasions such as marriage. Because the borrowers almost always worked for the lenders, they took gold as collateral. It was a more convenient approach for individuals to obtain loans in a short period of time and with minimal difficulty.

Gold Loan Interest Rates: Formalisation Of Gold Loan In Banking

The first recorded use of gold as collateral for loans was in India in 1959.
In lieu of these benefits, banks in coastal Karnataka (Syndicate Bank and Canara Bank), Kerala (Federal Bank, South Indian Bank, Catholic Syrian Bank, Dhanalakshmi Bank), and Tamil Nadu (Indian Bank, Indian Overseas Bank, Karur Vysya Bank, and Lakshmi Vilas Bank, among others) jumped into the gold-loan game in a big way during the 1960s.
By 1973, the practice spread throughout Asia, particularly in China and Japan, where it became an established part of the financial system.

The 4x Gap In Interest Rates

While gold loans continue to be popular throughout the country, the cost of borrowing varies between lenders, the purity of your gold as well as many other factors.
In fact, while some NBFCs like IIFL Finance start lending at as low as 6.48% per annum, there are other market participants that charge up to 32-36% gold loan rate per annum. In many cases, borrowers end up paying more interest than the value of their jewellery collateral.
Additionally, you are forced to pay a processing fee (which ranges from Rs. 250 to 2% + GST). Although the interest rates may be low, the processing fee may end up making borrowing more expensive.

Gold Ownership

Because roughly 65 per cent of gold in India is held in rural areas, where people’s primary income is based on agriculture and related industries. They are dependent on gold loans due to the unpredictability of their income. Because the majority of the population still lacks access to conventional bank credit, they must rely on other methods to obtain gold loans.

Apply For An IIFL Gold Loan With Low-Interest Rates

IIFL Finance offers a diverse range of investment schemes that start at a gold loan rate of interest as low as 0.83% per month. You can walk into any of our 1900 branches pan India, complete eKYC within 5 minutes, and be eligible for getting money within 30 minutes. You can also apply for a gold loan through the IIFL app and receive cash for your gold right at your doorstep. Now get cash quickly with IIFL Gold Loans.

Frequently Asked Questions

Q1. What Are The Current Gold Loan Rates?

Ans. The average interest rates for gold loans in India are 7-9% with an additional nominal processing fee. However, they vary from one lender to another. Some lenders even charge up to 36% per annum.

Q2. When Did Formal Gold Loan Disbursement Begin In India?

Ans. Gold loans first began in 1959 and were later popularised by many banks through the early sixties in South India. Before that, cash against gold had always existed, but it was an informal market.