September 20, 2022
When we think of investments, one of the greatest ways we think to invest is through gold. It would have formed into us traditionally (since Indians for long have been known to be the greatest gold consumers), or it could be just out of the warmth and safety this precious metal brings to us. At the same time – when it comes to taking loans in times of need – this metal again comes to the rescue. We could never possibly deny that gold loans are one of the easiest and most user-friendly ways of getting a loan during a cash crunch.
It is easier to pay off and get the metal back into possession. There are various factors, though, that would affect the rate of interest of these gold loans, and you can find them here. But, before that – let us look at what actually is a gold loan.
What is the Meaning of a Gold Loan?
A gold loan – which is also known as the loan against some gold, is a secured loan obtained from a lender in exchange for gold items such as gold jewelry. Lenders will usually provide you with a loan based on a percentage of the gold’s value. You can reimburse it in monthly installments and get your gold items returned. Unlike other loans that are secured, such as a home or car loan, there are no restrictions on how gold loans can be used.
So, whether you need to pay for a wedding, a family trip, or your child’s schooling, it is a terrific option to fulfill an unexpected financial need. Furthermore, several commercial and nationalized banks, as well as NBFCs, provide gold loans at low-interest rates.
The gold loan process is very similar to other secured loans. In this case, you take your gold items to a lender along with the necessary documentation. The lender checks the gold products and confirms the paperwork presented. The lender approves the loan amount based on the evaluations. According to the loan agreement, you repay the principal amount as well as the interest amount and receive the pledged gold products back.
You’ll always know the price of gold – for instance, if you are residing in Coimbatore, Tamil Nadu, you can instantly look up gold rate in Coimbatore for the present day. Therefore, you will always know the value of your loan. The only thing you would then have to consider is the rate of interest that you would be paying.
Gold Loan Interest Rates
Since this is a secured loan – the interest rate is lower than that of an unsecured loan such as a personal loan. The rates of interest that are charged on these gold loans vary from lender to lender and are decided by various factors such as gold loan tenure, loan amount, and so on. It also depends on whether you get a gold loan from a bank or an NBFC. Banks often charge lower interest rates on gold loans than NBFCs.
As a result, if you intend to apply for a gold loan, do not accept the first offer you receive. Compare gold loan schemes from at least a minimum of two to three lending organizations before making your final decision.
What Affects the Interest Rate with a Gold Loan?
When you take a gold loan, there are a few things that would either increase or decrease the interest rates, and they are:
a) Your Income: Unlike personal or corporate loans, gold loans have basic and straightforward requirements from borrowers. When you apply for a gold loan – the lender would meticulously examines everything from your credit report to your employment history to your company ambitions. In contrast, a gold loan has very low eligibility conditions. One of the things that your lender will consider is your monthly income.
The lender will be more confident in you if you have a higher salary. This instantly reduces the interest rate charged by the lender. The lender will charge you a cheaper interest rate because he or she is confident that you will repay the debt. If your income is lower, though, the lender may charge you a higher interest rate.
b) The Amount of Loan: The loan amount you require has a significant impact on the interest rate of your gold loan. If you want a bigger loan amount – you will pay a higher interest rate. So, before settling on gold loan interest rates, consider the loan amount required and analyze all accessible possibilities. You could also utilize the gold loan interest rate calculator to get a rough estimate.
c) The Lending Rates in the Market: The external benchmark to which the lender’s rate of interest is tied will decide your gold loan interest rate. It is assumed that all bank-approved loans are tied to an external benchmark. When the RBI raised policy rates, lenders soon raised interest rates as well. Even when the Reserve Bank of India cut rates, interest rates did not alter immediately. The RBI requested that lenders tie their lending rates to an external benchmark.
That might be the repo rate from the RBI or the 10-year government bond rate. This rate will affect gold loan interest rates.
d) Your CIBIL Score: Your CIBIL score defines your creditworthiness, and it is one of the essential elements examined by your lender when calculating the interest rate on a gold loan. A strong credit score indicates that you have an excellent payback history and that you can easily return the loan amount on time. The higher your CIBIL, the more likely you are to qualify for lower interest rates. So, before you can apply for a gold loan, make sure you have a decent CIBIL score and that any concerns on your credit report have been resolved.
When you are actually taking a gold loan (from anywhere), it is never too late to know everything that happens behind the scenes. When you do know the reasons, it is easier for you to make a wiser decision. The same stands in place for taking a gold loan and knowing the rates; therefore, you would be taking this loan at the right time.