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 interest 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.

4 Gold Loan Interest Rate Secrets That Might Surprise You

Gold isn't just a symbol of wealth and beauty—it can also be the answer to your financial struggles. Your gold jewellery might hold the key to getting fast and hassle-free cash through a loan against gold. However, it's essential to grasp the details of interest rates before jumping in. Here are four surprising facts about gold loan rates of interest that you should know.

1. Loan Amount

The determination of the interest rate is significantly influenced by the amount of your loan. It isn't just about the weight of your gold; it depends on how pure and valuable it is. The purer (measured in carats) and heavier your gold, the more money you can borrow. Most lenders follow a "Loan-to-Value (LTV)" ratio or “Gold LTV ratio”, usually up to 75%. For example, a 22-carat, 50-gram gold chain could get you a loan of around 37,500 INR (assuming an LTV of 75%). That's the magic of your gold's sparkle!

2. Interest Rates: Fixed vs. Floating

Gold loan interest rates come in two variants: fixed and floating. Fixed rates stay constant throughout your loan term. This predictability makes budgeting a breeze, and you know exactly how much you owe each month. Floating rates, on the other hand, fluctuate with market changes. While they can sometimes lead to lower interest rates, they also carry the risk of unexpected spikes. Choosing the right type depends on your risk appetite and financial goals.

3. Gold Loan Calculator:

Gone are the days of head-scratching calculations! Enter the gold loan calculator, your new best friend in navigating interest rates. These handy online tools let you input your gold's weight, purity, and desired loan term to get an instant estimate of your interest rate and monthly payments. Play around with different options to find the loan that best suits your needs. Remember, knowledge is power, and the calculator is your secret weapon for making informed decisions.

4. Loan tenure

It essentially is the duration you have to repay your gold loan. It plays a crucial role in determining your monthly repayments and the total interest you pay. They can be classified into three types:

• Short-term Loans (6 months - 1 year): These are ideal for urgent needs or bridging temporary cash gaps. The monthly payments are higher, but you pay less interest overall and become debt-free quicker.
• Medium-term Loans (1-3 years): Offer a balance between manageable monthly payments and lower total interest compared to short-term loans. They suit planned expenses like home renovation or medical bills.
• Long-term Loans (3-5 years): While the monthly payments are smaller, the total interest cost becomes significant due to the extended repayment period. These are best for larger financial needs like education or business ventures, where you require a higher loan amount.

Key Facts about Gold Loan Interest Rates to Remember:

While the convenience of gold loans is undeniable, remember these crucial points:

1. Prepayment Charges: If you plan to pay off your loan early, be aware that some lenders may impose penalties. Take this into account when comparing loan offers.

2. Processing Fees: Be cautious of hidden expenses like processing fees or documentation charges. Opt for a lender who is upfront about all fees.

By grasping these facts and keeping these points in mind, you can confidently navigate the world of gold jewel loan interest rates. Remember, your gold is not just a beautiful ornament; it can be a valuable financial resource. Use it wisely, and may your loan journey be as smooth as your polished jewels!

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 2600+ 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 loan.

Read to know more:  How to get best interest rate on gold loan

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.