How To Save Interest On Your Gold Loan?

Repaying a gold loan can sometimes be stressful owing to other financial obligations. Read to know more about the ways how you can save interest on your gold loan.

21 Sep,2022 11:40 IST 22 Views
How To Save Interest On Your Gold Loan?

Gold is an age-old choice for investment in India and its appeal remains high even today even though stocks and mutual funds have emerged as the preferred forms of new-era investment. What makes gold even more popular among the masses is that it can be used to secure a loan during financial crises.

A gold loan is a secured loan that a borrower gets from a bank or a specialised financial institution by pledging gold jewellery. Lenders approve the gold loan depending upon on the purity and weight of the gold kept as collateral.

Most lenders offer a loan equivalent to 60-75% of the prevailing market price of gold. To be sure, many lenders do not accept gold coins or bars as a security for gold loans.

Saving Interest On Gold Loans

Like all other loans, gold loans also need to be paid back along with interest according to the terms and conditions decided at the time of approving the loan. Many lenders allow a great deal of flexibility for gold loan repayments.

The most common repayment option is for borrowers to pay back the loan through equated monthly installments, or EMIs, which include both the principal amount and the interest component. Most salaried people or those with regular cash flows opt for this option. 

Many lenders also allow other repayment options. For instance, they may allow a borrower to pay only the interest first via EMIs and pay back the principal amount at the end of the loan tenor. In case of smaller loans for shorter tenors, some lenders may permit borrowers to pay the entire amount as a single payment at the end of the term.

Borrowers can save some interest on gold loan repayments through a number of ways.

• Pay The Principal Amount First:

The amount of interest depends on the principal amount. Thus, repaying the interest first and keeping the principal amount to be paid at the end of the loan period costs more money. Borrowers can seek a customized repayment schedule that allows them to clear the principal amount in multiple installments, and then repay the interest. It lowers the overall interest to be paid on the loan.

• Make Pre-Payments:

Borrowers can reduce their interest outgo by making partial prepayments as and when they get some extra cash in hand, such as a bonus from office. The partial payment is adjusted against the principal, helping bring down the interest cost on the outstanding amount.

• Offer A Non-Gold Asset As Collateral:

The cost of borrowing can be reduced by offering another tangible asset like property or fixed deposits as collateral.


Gold loans are secured loans. Since the gold jewellery remains with the lender to cover the risk of a default, it comes with lower interest rate than unsecured personal loans and credit card debt.

Borrowers should avoid local pawn shops and moneylenders and instead take gold loans from banks and NBFCs, which are regulated by the Reserve Bank of India, and keep the gold safe. Reputed lenders not only offer competitive interest rates but also allow borrowers greater flexibility in repayment that can help them save on the interest cost.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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