Important factors that influence interest rates on gold loans


India is one of the biggest consumers of gold, and its demand is up surging at an exponential rate. This is why here gold loan has become one of the fastest and easiest ways to get access to funds. As per the RBI guidelines, a borrower can expect to get 75% of their gold’s present market value as their loan amount.

Thus, when prices are high, borrowers are likely to receive a greater loan amount against their pledged gold jewellery. But while availing of this loan, what matters most to people is gold loan interest rates in India.

Top 4 factors affecting gold loan interest rates in India

As gold loan interest rates in India vary from lender to lender, borrowers usually look for one offering the lowest interest rate on gold loans. But why do these interest rates vary? 

Here are some prime factors upon which the interest rate on gold depends:

  • Loan amount

One of the major factors upon which interest rates on gold loans depend is the principal loan amount. The amount, however, depends upon the overall value of gold being pledged to lender. The higher the purity of gold, higher the loan sanction. 

  • Monthly income

The monthly income of borrower is another significant factor to consider while deciding the interest rate of gold loans. If monthly income of borrower is high, lenders will charge them lower interest rates because their repayment capacity will also be higher.

  • Market price of gold

Another factor that determines gold loan interest rates in India is the present market price of gold. If value of gold that you have pledged is high, then the overall loan amount will also be high.

In that case, lenders will provide a lower interest rate as risk of losing money is too low. Even if the borrowers fail to repay back loan, lenders can easily recover it by auctioning or selling the gold items.

  • External benchmarking lending rates

Lenders usually follow two types of evaluation methods to decide the interest rates on gold loans. These methods are repo rate-linked lending rate (external) and MCLR linked lending rate (internal).

Depending upon the benchmark which lenders follow, the gold loan interest rates vary from lender to lender. Thus, with a slight change in RBI policy rate, the interest rates also change.

Please note: Credit score of a borrower doesn’t play a crucial role in loan approval. However, this score defines a borrower’s creditworthiness. Applicants with good CIBIL score can avail gold loans at comparatively lower interest rates. 

Thus, applying for the best gold loan is pretty easy in India, as lenders can keep a borrower’s gold items as collateral with them. Also, it is a less risky option for lenders, as they can sell borrower’s pledged gold items that have been kept with them in case of default.

So, before applying for a gold loan, borrower must check out and evaluate these factors to get the lowest gold loan interest rates in India from their lenders. By selecting a favourable interest rate on gold loan, even one can substantially save on repayment amount.


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