How To Get The Lowest Gold Loan Interest Rate

While seeking a gold loan, a crucial factor is the lowest gold loan interest rate. Gold loans are collateral-backed and less expensive than other types of loans. However, interest rates differ from one vendor to the next in addition to other vital factors that cause an increase or decrease in the rate.

Some lenders may offer a higher or low gold loan interest rate based on the value of your collateral, while others may determine the interest rate based on your credit score and loan term. Therefore, to make an informed decision on your gold loan, it's important to understand the factors that affect its interest rate.

Gold has been a trusted investment avenue for ages. This works well for banks and other lending institutions to leverage this solid trust to help individuals raise money. For a long time, a loan against gold has been one of the chief sources of funds for an individual in need of additional cash.

When looking for a loan, the interest rate is an important factor. But did you know, lenders may give you an economical jewel loan interest rate too? Yes, it is possible to get a gold loan at affordable rates and this involves doing some work.

Factors That Affect Gold Loan Interest Rates

• Gold rates in the market - Gold is an international commodity whose prices fluctuate continually. When gold prices are high, the value of the gold jewellery pledged will also be high. Lenders then charge a lower interest rate as the risk associated with recovery is low. However, if the borrower cannot pay the EMIs, the lender can auction/sell the pledged collateral and recover the dues.
• Gold karatage (purity) - An important factor that affects the rate of interest on a gold loan is the karatage or the purity of the gold ornaments pledged with the lender. The higher the purity of the gold ornaments, the lower the interest rate. This means ornaments with a gold purity of 22K are likely to be charged a lower rate of interest than those made from 18K gold. Lenders ascertain the purity of gold using an industrial-grade carat gauge.
• Monthly income - Income stability is a crucial factor that banks and lenders consider when applying for a gold loan. Lenders look for the applicant’s stability from the income source and may consider charging a lower rate if there is certainty of repayment.
• Demand and supply - As a tradeable commodity, gold prices also react to demand and supply for the precious metal. As is known, the quantity of gold in the world is finite. Therefore, the price of gold is generally higher as the demand always exceeds supply. However, the higher the price of gold, the lower the interest rate on the gold loan, as the risk of the gold loan is less.
• Inflation - The rate of inflation also affects the rate of interest on a gold loan. When inflation is high, the value of currency depreciates, and people shift to gold as a store of value. Gold is a good hedge against inflation, especially when inflationary conditions persist. This pushes the gold prices upwards, and it may be a good time to opt for a gold loan as the interest rates may be lower.
• External benchmark lending rate - The interest rates on gold loans also change in response to the policies of the Reserve Bank of India. Lenders follow two types of benchmarking methods to derive the interest rate. One is the repo rate-linked interest rate, and the other is the Marginal Cost of Lending Rate-linked lending rate. A lender can opt for either of these benchmarking methods, and lenders that have their gold interest rate benchmarked to MCLR charge a lower interest rate on their gold loan.
• Loan-to-value (LTV) ratio - When considering a loan by pledging gold, LTV ratio is important. The higher the LTV, the higher the rate of interest on the gold loan, making the loan relatively more risky. The risk emanates from the low margin for error on the probability of an applicant’s default.
• Repayment frequency - The repayment frequency and rate of interest on a gold loan are inversely related. Applicants who opt for a loan repayment with a higher frequency of EMI payments may be charged a lower interest rate on their loan and vice versa.
• Relationship with the Bank - Existing customers with a relatively long association with the bank may be charged a lower interest rate for maintaining their and their dependents' accounts with the bank.

Things To Consider Before Securing A Gold Loan

Research The Lowest Gold Loan Interest Rates In Your Area

To get the gold loan interest rate, perform preliminary research by asking around, online forums, or visiting multiple lenders. When researching interest rates, look at:

• The gold loan interest rate (the annual percentage) charged by different companies
• The interest rate on other types of loans to estimate lenders offering cheaper loans

Beyond the rate of interest, it is further important to consider charges like processing fees, sign up charges, and other vital information. Look for a lender that offers a lower loan processing time, too. Together, these will help you determine the best gold loan provider for you.

Get A Gold Loan Appraisal Done By A Reputable Organization

To get an approval for a gold loan, it’s important to know the weight and purity of your gold. A reputable organization will help you determine these factors through an appraisal. An appraisal is a written document that states the weight, purity and market value of your gold.

The appraisal also verifies that your gold is real and not fake. It gives you an idea about where to sell your jewellery/gold coins if needed as well as what price range (fair market value) for different pieces of jewellery in certain conditions (for example: if it needs cleaning).

Check The Maximum Value You Will Get For Your Loan

Much like any other loan, the lender gives only a portion of the security value as a loan. This is called the ‘Loan to Value’ (LTV). In India, the Reserve Bank of India (RBI) has regulated that the LTV for gold shall be up to 75%.
This means that if you have gold jewellery worth Rs. 1,00,000, you are eligible to only get Rs. 90,000 as a loan against that collateral. However, the lender may provide a lesser than or equivalent amount of loan.

Check Your Financial Stature

You can get your preferred gold loan if you know the factors that affect it and where to look for it. Your credit score and income level impact the decision, too. If you have an excellent credit score and earn a high income per month, then lenders are more likely to offer low-interest rates on their loans.

Informed with this information, you can now make a better choice in choosing the right partner and getting the lowest gold loan interest rate for your financial needs.

Pick your bank or NBFC wisely

An applicant has two options when applying for a gold loan. One is a bank, the other is a Non-banking Financial Company (NBFC). The latter charges higher interest rates on a gold loan as they do not have access to large deposits. While, banks charge an affordable rate of interest along with minimal documentation and a convenient application process. An applicant must consider all these factors when opting for either of these two lenders.

Consider the terms and conditions regarding interest rates

One of the prime criteria for picking a loan is the interest rate the bank charges. The rate affects the applicant’s ability to repay. Hence, one should get a clear idea about the likely changes in the interest rate that the bank may affect during the loan tenure. This information is contained in the Terms & Conditions in the bank’s application form.

Bear in mind the total cost of the loan

Besides attractive rates, an applicant must consider what other levies the lender charges on the gold loan. Lenders generally charge processing fees, Mark-to-Market charges, auction charges, SMS charges, stamp duty and early closure fees, as the case may be among other charges on a gold loan.

Gold evaluation by a reliable evaluator

Ensure that your lender gets the gold ornaments appraised by a reliable evaluator. As an applicant, you can also get your gold evaluated by your trusted jeweller and use the gold loan calculator on the IIFL Finance website to get an idea of the eligible loan.

Get The Lowest Gold Loan Interest Rate With IIFL Finance Gold Loans

IIFL Finance has diverse schemes with rates starting as low as 0.83% per month. You can walk into any of our branches pan India, complete e-KYC within 5 minutes and be eligible for getting money within 30 minutes. You can also apply for gold loan through the IIFL app and receive cash for your gold right at your doorstep. Get cash quickly with IIFL Gold Loans now.

Read to know more: How to save interest on your loan

Conclusion

The gold loan rate of interest is an important determinant for an applicant to consider a loan from a lender. An applicant must study the market and the interest rate lenders charge on the gold loan. There are some important tips that an applicant should know before applying for a gold loan. When considering a gold loan, study what the banks and NBFCs charge on their gold loans.

Frequently Asked Questions

Q1. What Is The Lowest Gold Loan Interest Rate?

Ans. While the average gold loan rates vary between 7-9 per cent per annum, IIFL Finance provides attractive schemes starting at 0.99% p.m. However, along with interest, your effective rate of borrowing also includes processing fees and other minor charges.

Q2. What Factors Affect Gold Loan Rates?

Ans. The common factors influencing gold loan rates are purity of gold, credit rating, term of borrowing, loan amount, etc. These together determine how cheap or expensive your rate of borrowing would be.

Q3. Will I Receive The Full Value Of My Gold As The Loan Amount?

Ans. You will receive only a portion of the value of your gold as the loan amount. The maximum loan amount is capped up to 75% by the RBI but it varies from one lender to the next. IIFL Finance offers 75% of the value of your gold as a loan.