Gold loans have become a quick financing option for individuals needing immediate funds. Since they are secured loans backed by collateral, they typically offer lower interest rates compared to unsecured loans. However, the rates vary based on several factors, including the lender, loan amount, tenure, and borrower profile.
Let us explore how these rates are determined, compare offerings from major banks and share expert tips to secure the lowest rates.
How gold loan interest rates are determined
Lenders consider multiple aspects before deciding the applicable rate:
The loan-to-value ratio has a vital role in determining the gold loan interest rate. This ratio represents the percentage of the gold's market value a lender offers as a loan. If the LTV is higher, meaning you borrow close to the gold's entire value, the interest rate tends to increase as the lender assumes more risk.
Market trends also influence borrowing costs. When the Reserve Bank of India adjusts repo rates, financial institutions often revise their lending rates accordingly. A hike in repo rates leads to higher interest charges on loans, including those secured against gold.
The lender you choose affects the final cost of borrowing. Banks provide lower interest rates due to their regulatory guidelines, whereas NBFCs may offer quicker approvals but at slightly higher rates.
Loan tenure is another factor to be considered while calculating the interest. Shorter tenure repayments often come with lower interest rates, whereas longer tenures may increase the overall cost of borrowing. Choosing a tenure after consideration can help optimise your repayment strategy.
While a CIBIL score is not the primary criterion for gold loans, some lenders offer better interest rates to borrowers with a strong financial profile.
Tips to get the lowest interest rates
Comparing lenders is the first and most crucial step in securing the lowest gold loan interest rate. Different banks and NBFCs offer varying interest rates, so researching and evaluating multiple options can help you find the most affordable one.
Opting for a lower LTV ratio can also result in a better deal. If you pledge more gold while borrowing a lesser amount, lenders perceive it as a lower-risk loan, leading to reduced interest rates.
Choosing a shorter tenure can significantly minimise the overall cost of borrowing. Since interest accumulates over time, repaying the loan within a shorter period ensures that you pay less in total interest.
Conclusion
A gold loan interest calculator can help you estimate monthly payments and total repayment costs. The tool allows you to make an informed decision and select the most cost-effective loan option.
By understanding the factors influencing borrowing costs and comparing lenders, you can make a well-informed choice to secure the most competitive deal.
