Assessing the Current Gold Loan Rates in India

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Gold loans are a secured form credit, and it comes with its own set of advantages. Being a secured loan, the underlying collateral minimizes risk to lenders. Thus, the prevailing loan against gold interest rate tends to remain lower than its unsecured credit counterparts.

In the current market scenario, this rate can range from as low as 7% and go up to 19% depending on the lender. Here are some factors that play an active role in determining this rate –

• Loan principal amount

The loan principal here plays a major role in determining the final gold loan rate. A point to keep in mind is that LTV is a determining factor in deciding loan amount. The loan-to-value ratio represents the proportion of loans available to a borrower as opposed to the market value of their pledged gold. Moreover, in the case of a gold loan, this ratio ranges from 65% to 90%.

For example, if the collateralized gold is worth Rs.1 lakh, a borrower can acquire a loan amount ranging between Rs.65,000 and Rs.90,000 against it. This LTV also varies from lender to lender.

In any case, a higher instant gold loan principal usually results in increased interest rates on such advances.

• Borrower’s income

Even though the underlying collateral reduces the risk for NBFCs offering gold loans, they still need to ensure that a borrower is capable of repaying his/her dues. Therefore, applicants with a higher monthly income than what is perceived by a lender stand a chance to secure better interest rates and vice versa.

Furthermore, the gold loan eligibility criteria and documentation are not hard to fulfil. Hence, an applicants’ earnings often determine his/her interest liabilities.

• Benchmarking followed by a chosen lending institution

Financial institutions follow one of two types of benchmarking methods when determining interest rates on their products – RLLR or MCLR. The former is directly linked to the RBI’s repo rate. Thereby leading to changes every three months, coinciding with RBI’s monetary policy updates.

MCLR linked gold loan rates also change with repo rate fluctuations. However, these changes take longer to reflect on a borrower’s EMI. Moreover, the increase or decrease in rates is not to the same extent as that of the repo rate slash or hike.

When applying for a gold loan, individuals must check whether their chosen lender follows the RLLR or MCLR benchmarking system. This factor can be crucial in determining the gold loan rate today.

• CIBIL or credit rating of a borrower

CIBIL is the measure of one’s creditworthiness based on loan repayment history, delinquencies, and more. Maintaining a credit score of 750 or higher is crucial these days regardless of the kind of loan one opts for. Since a gold loan is a secured form of credit, an individual’s CIBIL does not determine his/her eligibility. However, it is a factor in deciding interest rates.

For instance, an individual with a score of 600 can still acquire a gold loan from any financial institution. However, he/she would need to bear interest at a higher rate when compared to a borrower with scores of more than 750.

Before applying for an online gold loan, make sure to check these factors. Doing so would allow a gold loan borrower to acquire the best terms on his/her advance.

Apart from the affordable rates, such loans also provide a range of other benefits, most of which are unique to gold loans.