Gold Loan Interest Rates


Five Important Things About Gold Loan

1) Age: To avail of a gold loan, you should be at least 18 years old and not beyond 75 yrs.

2) Loan amount: Banks offer about 75%-80% of the gold amount after verifying its purity, and banks and financial institutions only accept gold of carat rate between 18-22.

3) Loan period: The minimum time to acquire a loan varies from 3-6 months, and the maximum time is 60 months, i.e. 5 years.

4) Required documents: The added benefit to availing of a loan is the minimum paperwork it needs. All you need is ID proof, residence proof, and agricultural land proof if you are a farmer requiring an agricultural gold loan.

5) Repayment schemes: The most common way to repay the loan amount you borrowed is via EMI, but it is applicable only if you are self-employed or a salaried person. The monthly interest amount is detected from your bank account each month, and the principal amount is to be paid by the end of the tenure. Bullet scheme payment is another type of repayment applied in most banks, where the principal and the interest amount are to be paid in full at the end of the tenure. The relatively less expensive used form of repayment is partial rates, where each month is part of the principal amount, and the interest is detected from your account.

What Is An Interest Rate?

The interest rate is a percentage of the loan amount lent by the loaner for the usage of an asset in a certain period. In this case, when the gold is pledged, the company offers a gold rate to the loanee, which is the principal amount, and to that amount, the bank or NBFC’s charge a particular percentage of that amount monthly. It Usually, it ranges from 7.5%-30% in various banks all over India. Banks offer a partiality to farmers in an agricultural gold loan with a much lesser interest rate than a normal customer can avail. The five farmers can borrow money from farming-related equipment or farms if they submit a legit farming land document to the bank.  

Factors Affecting The Interest Rates:

1) Principal amount: Bank interest rates may vary from the principal amount, so the money is significant, the interest is too. For example, in Manappuram Gold Loan, the starting rate is 9.90%, and it goes as high as 30%.

2) Value and purity: The interest rate highly depends on the value of the gold article you pledge. Most banks and NBFCs don’t accept gold coins, and very few banks gold of purity less than 16%.

3) Bank’s lending rates: Banks have specific rates that they can’t cross the line -above or below. Two of which are Marginal Cost of Funds based Lending Rate(MCLR), which is the minimum lending rate for a bank. And the other is Repo Rate lInked lending rate(RRLLR) which is the rate at which the bank borrows the funds from RBI and lets the loanee cut the repo rate.

4) Source of income: Most banks in India don’t ask for income proof, but some banks and NBFCs consider and prefer loaning customers with a stable income.

Gold loan is a preferred loan worldwide compared to many other loans, but gold loan if not appropriately neutered, i.e. if the EMI or the principal amount is failed to be paid. The bank has the right to auction the gold. More than three months of interest payment may result in a more significant dent in the account than planned. Choosing a bank is as important as choosing the best interest rate. The bank should be a recognised, authorised bank with a legitimately large number of customers. One should always be careful while choosing to pledge an asset.