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Key Factors That Influence Gold Loan Interest Rates

January 13, 2023 / 04:26 PM IST

A gold loan is a secured financing option that allows borrowers to obtain substantial funds against high-value gold ornaments. Based on current regulations by the RBI, lenders can offer up to 75% of pledged gold’s value. Since gold prices vary almost regularly, lenders assess the market value of your gold jewellery gold when you apply for a loan.

To make the loan affordable, you must look for a lender offering the lowest gold loan interest rate to save substantially on the repayment amount.

Prime factors impacting gold loan interest rates

  • Monthly income

Unlike unsecured loans, gold loans come with easy and flexible requirements for borrowers. Lenders specify very few eligibility parameters when a borrower applies for a gold loan.

A stable source of income reduces gold loan rate that the lender imposes against the loan amount you wish to borrow. This is because the lender is confident about your ability to repay the loan. Conversely, borrowers with a lower income may be charged higher interest rates.

  • Market price of gold

This is one of the key factors that significantly influence gold loan interest rate in India. If the market price of gold is on the higher side, the value of pledged gold ornaments will also be higher. Moreover, the value of pledged gold ornaments determines loan amount you can avail.

Usually, lenders offer up to 75% of the total market value of your gold. If the value of gold is high, lenders may offer attractive interest rates because the risk of loss at their end is low. However, if you are unable to repay the loan, the lender will recover the amount by auctioning off your gold.

  • Demand and supply

Like any other sale of a commodity in the market, the value of gold depends on supply and demand. However, in contrast to consumable products, only gold that has been mined to date is available in the market. As the amount of gold mined every year worldwide is not very high, this quantity is finite.

Therefore, in case the demand rises, supply does not increase simultaneously, which can cause the price of gold to fluctuate. In this event, it may be difficult to find a lender who is charging a low interest rate on gold loans.

Eligibility criteria and documentation needed for a gold loan

Like with every other financial product, borrowers need to fulfil certain eligibility parameters and submit necessary documents. However, in case of a gold loan, since funds are available against the value of pledged gold, lenders do not impose strict criteria. At most:

  • Applicants should be aged between 21-70 years

  • The pledged cold should be of at least 22 carats

You will also need to submit KYC documents as proof of your identity and address.

How to apply for a gold loan

Applying for a gold loan is simple and hassle-free. To ensure quick loan approval, you can approach a reputed financial institution like Bajaj Finserv and apply online. The steps you need to follow are:

Step 1: Visit the lender’s website and navigate to the gold loan application form

Step 2: Fill in the necessary details

Step 3: Verify your identity with the OTP sent to your mobile number

Step 4: Submit the loan application

Step 5: Visit the designated gold loan branch with your ornaments at the scheduled appointment time

To summarise, before applying for a gold loan, you must consider the gold loan interest rate as it will determine your repayments throughout the tenure. Therefore, do not rush into obtaining a loan and thoroughly research lenders, so that you choose the most affordable loan product.

Moneycontrol journalists were not involved in the creation of the article.

Tags: #Features
first published: Jan 13, 2023 04:26 pm