For Rs 5 Lakh Gold Loan: Check EMI & Latest Interest Rates

A gold loan has become one of the most popular products used by borrowers to tide over their short as well as long-term financial requirements. While such requirements are often associated with some form of emergency, people are also taking gold loans for planned expenses such as a family wedding or going on a vacation.

This is because a gold loan has certain advantages over personal loans. An easier approval process, less paperwork, no requirement of credit history, and tax benefits are some of the benefits associated with gold loans.

Because a gold loan is a secured product, banks and NBFCs have made it easier for borrowers to opt for such loans. The approval process is quick and hassle-free, and the tenure of the loan can range from as short as seven days to as long as 20 years.

Cost Of Gold Loans

Almost all banks and many NBFCs in India offer gold loans. But eligibility requirements, repayment terms, interest rates and tenure may differ from lender to lender. In general, purity of the gold, interest rate, and other charges determine the cost of opting such loans. So, the cost of a Rs 5 lakh gold loan will vary from lender to another. The cost will also vary from person to person, depending on factors such as tenure and interest rates.

Many lenders provide an online gold loan calculator to help borrowers understand how much loan they can get based on the type and quality of jewellery and what is the repayment and the EMI cost.

It is to be noted that most of these illustrations are based on the current market conditions and data. Borrowers should give the exact details with the lender to get more information. Loan aggregation websites also provide gold loan calculators. But it is essential to understand a few concepts.

Interest Rate

The decision to select which lender to choose depends on a variety of factors with interest rate being the most important. Gold loan rates in India start from a low of around 7.35% and go upwards to 20% per annum or more. So, the EMI for Rs 5 lakh gold loan priced at 7.35% per annum stands at around Rs 10,300 per month for five years. This means the total interest payout would be about Rs 1.2 lakh over the five-year period.

However, if the interest rate changes to 18%, the EMI would be around Rs 13,400 and the total interest payout would be more than Rs 3 lakh over the five-year period.

In addition to the interest rate, there are other charges such as processing fees, prepayment charges that need to be also considered to arrive at repayment amount or the gold loan cost. It is important to remember that equated monthly installments, or EMIs, may differ from lender to lender because of difference in charges. Assessment of current value of the gold kept as collateral also affects pricing and fluctuations in prices lead to changes in repayments linked to floating interest rates.

LTV

It is also important to understand the concept of LTV, or the loan-to-value ratio. Lenders provide gold loans based on the rules set by the Reserve Bank of India. According to these rules, the LTV on gold loans is capped at 75%. This means lending institutions will give loans of up to 75% of the market value of the gold kept as collateral.

However, some banks may choose a lower LTV and hence the cost of opting for a gold loan may also change. So, if the market value of gold is say Rs 5 lakh, the borrower will be eligible for a maximum of Rs 375,000 as loan. This means that to take a loan of Rs 5 lakh, the borrower would have to pledge gold worth about Rs 6.7 lakh.

Repayment Mode

How much a Rs 5 lakh gold loan costs would also depend on the repayment method that the borrowers opt for. Most banks provide a variety of repayment methods, in addition to the popular EMI option, where interest and principal is paid together. The EMI repayment method is mostly used by salaried borrowers as they have visibility on the monthly income. Some lenders also allow paying only interest in the form of EMI and principal later.

Other forms of repayment are partial payments and bullet repayment. In bullet repayment, both interest and principal are paid at the end of tenure of the loan. Non-EMI routes of repayment are also opted by borrowers who take gold loans for business purposes because in addition to the lower interest rate, it is also eligible for tax benefits.

The tenure of the loan is important in calculating the EMI on gold loans. For instance, banks charge a higher interest rate on 12-month bullet repayment gold loans and slightly lower interest rates for six- and three-month bullet repayment gold loans.

Conclusion

Most people have some form of gold jewellery at their home and this can be utilised in times of emergency to take care of finances. Banks and NBFCs such as IIFL Finance understand the emotional attachment of Indians towards their gold holding. So, they ensure that jewellery kept as collateral is safe and secure.

At the same time, reputed lenders like IIFL Finance have made the entire process of taking and repayment of gold loan easier and hassle-free by using digital tools. IIFL Finance also offers flexible repayment methods to ensure the borrowers don’t feel the burden.