Gold has been a valuable asset since ancient times due to its durability and intrinsic worth, making it a precious metal. The value of Indian rupees is also influenced by the price of gold, making it a reliable store of wealth. Recently, gold has become a crucial asset for borrowing due to its rising price. Moreover, if you wish to secure financing using your gold asset as collateral, a feasible option is a gold loan. However, to get a gold loan at low-interest rates, it is essential to have a clear understanding of the factors that influence the interest rate.
This article will discuss factors that impact gold loan interest rates in India.
Factors Affecting Interest Rates of Gold Loans in the Indian Market
Credit Score
When applying for a gold loan, your CIBIL score is crucial in determining your creditworthiness and the interest rate you’ll receive. A higher score indicates a positive loan repayment history, which can lead to a lower interest rate. Furthermore, you should never rush for loans with higher interest rates, as it leads you to pay higher gold EMI loans. Therefore, it is important to check your credit score to secure a lower interest rate.
Price of Gold in the Market
If you are looking for a gold loan, knowing its market value is important; proper knowledge of the market value will help you get the best gold loan rates. As gold’s market value affects gold ornaments’ value, you pledge them as collateral, and the amount of your gold loan depends upon your collateral. Also, note that a high collateral value will help you get lower interest rates. The lender usually offers 60% to 90% of the total market value.
In other words, the lender will provide you with a lower interest rate in the event of a higher price of gold in the market because there is less risk. In contrast, the interest rate is higher because of the lower price of gold in the market.
Monthly Income
Before applying for a gold loan, you must fulfill certain requirements or eligibility criteria set by the lender. If you have stable income sources, you can get lower interest rates, as this will make lenders more confident about loan repayment. In contrast, borrowers with unstable or lower income sources must pay higher interest rates. So, it is important to have a stable income source for a lower interest rate.
Interest Rates will Determine by External Benchmarks Lending Rates
EBLRs are the lending rates of interest set by banks based on external benchmarks such as repo rates and 182 days of Treasury bills. And a bank can choose any external benchmark to link its interest rate to. Also, there is a rise in banks’ interest rates with the rise in RBI policy rates. But even after the RBI reduced the policy rates, banks did not reduce them instantly. Thus, benchmarks added transparency to the setting of interest rates by banks.
Principal Amount of Loans
It is another important factor affecting the gold loan rate of interest, as high-interest rates apply to high loan amounts. Also, note that most lenders offer 75% of your total collateral. So, before applying for a loan, it is important to compare the available options and choose your option wisely to get a lower gold loan interest rate.
Loan Tenure
The tenure of your loan also affects the interest rates because a longer period reflects a higher chance of risk to the lender, who charges a higher interest rate, whereas short-term loans pose less risk to the lender. Therefore, it is better to choose a shorter tenure to get an affordable gold loan rate of interest.
Conclusion
It’s crucial to plan and manage when considering taking a loan against your valuable asset. To do this, it’s recommended to use an EMI calculator. This tool provides an estimate of your borrowing and repayment amounts based on interest rates. It also allows you to compare and choose the best loan offer that suits your needs. And hopefully, this article will be able to provide you with tips for getting gold loans tailored to your specific needs.
Contact IIFL Finance right away to learn more about the criteria for a gold loan and how to apply!
Also read: What is A Gold Loan and How Does It Work?
