Key Points To Understand About Gold Loan Interest Rates

Gold is considered a haven, not just in India but globally. Indians are emotionally attached to gold and preserve it for their child’s wedding or financial emergency. During such circumstances, people can leverage their gold ornaments to get a gold loan that holds the potential to fulfill their cash requirements almost immediately. However, repaying the loan includes an interest amount which varies based on diverse factors.

This article elaborates on the fundamental points that affect gold loan interest rates.

Factors Affecting Gold Loan Interest Rate

A gold loan means pledging your gold items to borrow money equivalent to a part of its value. Your gold acts as collateral in a gold loan. While it is easy to avail of a gold loan, you should note the following factors affecting a gold loan interest rate:

1. Loan Amount

The interest rate of a gold loan depends on the quantity and carat of your pledged gold. Since this is a secured loan, the lender penalises a percentage of the current market value (also called LTV) of the mortgaged gold. The Reserve Bank of India has set the maximum LTV for gold loans upto 75%.

For example, if you submit gold ornaments worth INR 100,000, you can get a loan of up to INR 75,000 against them.

2. Monthly Income

Basic credit verification is the first step in checking the eligibility criteria. Lenders require the details of your ongoing loans and repayment history to assess your eligibility before approving a loan. This factor will determine the interest rate on your gold loan.

3. Gold Purity

Another influential factor in determining gold loan interest rate is the pledged gold purity. Usually, Indian lenders accept gold items from 18k to 24k. However, the higher the carat weight of the gold product, the lower the interest rate.

For example, a lender offers a lower gold loanrate on an item of 18-carat gold than they do on an item of  22-carat.

Lenders also use an industrial grade carat gauge during gold grading. It helps ensure deposited gold's accuracy and authenticity and competitive interest rates.

4. Inflation

As the currency depreciates during inflation, individuals tend to invest in gold as it acts as a hedge against inflation. As a result, gold prices are high, and individuals can enjoy lower interest rates.

5. The Market Price Of Gold

Gold prices are market-linked, which affects interest rates on gold loans. For example, when the gold price rises, lenders can offer better interest rates on gold and vice versa because credit risk is lower.

The lender also offers attractive gold loan interest rates to existing customers. However, borrowers should also compare different lenders to get the best interest rates. You can also use the gold loan calculator to calculate your interest outflow.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is a leading gold loan provider. We provide quick loans  financial requirements with minimum eligibility criteria. You can check the gold loan rates at your nearest IIFL Finance branch or online. The entire process, from application to disbursement is hassle free. This way, you can fulfill your needs and repay them per cycle. Apply for an IIFL Finance gold loan today!

Frequently Asked Questions

Q.1: What are the things to keep in mind while availing of a gold loan?
Ans: A few things to keep in mind while taking a gold loan are:
• Interest rate comparison
• Read the fine print of the terms and conditions
• Consider the total cost of the loan instead of just the interest rate.

Q.2: Is the gold pledged with NBFCs safe?
Ans: NBFCs understand the sentimental value of the lender’s gold and take utmost caution while storing your gold. Some lenders provide insurance for the same.