Gold loans have gained much popularity during the recent economic turmoil. Borrowers can avail of a sizable loan amount by pledging their gold assets. One of the major factors that have made this segment highly preferred among customers is the low gold loan interest rate. Being a secured loan, this financing option comes with lower interest as compared to other unsecured credit facilities.

A recent report states that:

  • The organised gold loan segment is set to grow at an annual rate of 15.7% between FY2020 and FY2022.
  • It will expand to Rs.4.61 lakh crore market in the fiscal year 2022 from Rs. 3.44 lakh crore in 2020.

To ensure easy repayment of the loan amount, it is essential to know about the rate of interest on gold loans.

About gold loan interest rates

Gold loans are offered by a number of financial institutions in the country. The rate of interest on a gold loan usually varies from lender to lender.

However, borrowers looking for a low gold loan interest rate can avail of these loans from various non-banking institutions. NBFCs like Bajaj Finserv provide loans against gold at competitive interest rates.

Lending institutions calculate the gold loan interest rate in the following ways:

Fixed interest rates: The rate of interest for a gold loan stays uniform throughout the repayment tenor. In other words, the monthly instalment of the loan amount stays unchanged throughout the repayment tenor.

Floating interest rates: The interest rates will change on the basis of market conditions and other associated factors.

Therefore, the EMI of the loan can either increase or decrease depending on the determining factors.

Factors that can influence gold loan interest rates

There are a couple of factors that can impact the interest rate of a gold loan. These are:

  • Market price

If the market price of gold at the time of availing of this loan is higher, then the value of the ornaments pledged will also be higher. The lender sees reduced lending risk in such a situation. Consequently, individuals can enjoy the lowest gold loan interest rates.

  • Inflation

Gold is a popular hedge among investors. So, whenever an economy suffers from high inflation and the value of currency depreciates, investors rush to invest in commodities like gold. As a result, the market price of gold jumps. In such cases, lenders tend to offer gold loans at highly competitive interest rates.

Top Benefits of a gold loan

Individuals looking to opt for gold loans to fulfil urgent financial requirements can enjoy the following benefits:

  • High loan amount

Individuals can avail of a high-value amount with a gold loan. Consequently, gold loans can be utilised to fund all types of personal and professional expenses adequately.

  • No end-use restrictions

A borrower can utilise the funds obtained through a gold loan to meet any kind of financial requirements. Gold loans come with zero end-use restrictions. One can use the loan amount to meet medical emergencies, fund a wedding, foreign trip, home expansion, overseas education and much more.

  • Safe and authentic evaluation 

Borrowers can have their gold assets appraised from the safety and comfort of their homes. Representatives from the lending institutions will carefully assess and evaluate the jewellery with a standard carat-meter. They will ensure authenticity, safety and accuracy.

  • World-class safety measures

Ornaments and jewellery pledged as security for a gold loan is stored under the highest order of security measures. These ornaments are kept in state-of-the-art vaults under round the clock surveillance.

  • Convenient repayment options

Gold loans also come with easy and highly convenient loan repayment plans. Individuals can opt to pay regular monthly instalments comprising principal and interest amount.

Contrarily, they can also choose to pay the interest amount periodically and the principal amount at the end of the tenor. You can also pay the interest upfront and principal amount later on.

  • Foreclosure and part-prepayment facilities

Borrowers can also enjoy part-prepayment and foreclosure options with gold loans. They do not have to pay any additional charges to avail of these facilities.

  • Part-release option

Individuals can also choose to release the pledged gold jewellery partially. They can repay the equivalent amount and release the gold whenever required.

What are the eligibility requirements to apply for a gold loan?

Individuals can avail of this advance even without a high CIBIL score. Here are some of the basic eligibility requirements that are common across various lenders to avail of a gold loan:

  • Applicants should be aged between 21 to 70 years.
  • Salaried, self-employed, traders, farmers, businessmen, and other professionals are eligible for this loan.

Notably, the loan amount that an individual can obtain will depend on the LTV ratio. Individuals who meet the eligibility criteria will enjoy the highest loan to value ratio.

Individuals also need to submit a few documents while availing of a gold loan. To ensure smooth approval, make sure to keep the required documents handy.

Loans against gold can be highly useful and efficient financial tools to deal with any major or urgent monetary requirement. You can easily apply for a gold loan online. However, make sure to compare and check across lenders to find the one providing the lowest interest rate on gold loans.