What Are the Important Parameters That Decide Your Gold Loan’s Interest Rate?

A gold loan from any lender may it be of Oro gold loan, SBI gold loan or HDFC gold, it is a secured credit option wherein you as a borrower can pledge your gold articles in the form of security or collateral to obtain a loan. Lenders in return tend to levy a rate of interest and once you return the whole loan proceeds, the lender or bank returns your gold that it kept as security or collateral or guarantee. The rate of interest on a gold loan differ anywhere between 7 per cent and 29 per cent per annum. The loan proceeds usually range between Rs 1500 and Rs 5 crore based on the security you deposit as collateral to avail the loan.

Important key highlights for gold loan –

  • Secured loan option 

A gold loan is a secured credit option that uses the gold article as collateral or security.

  • Rate of interest 

The gold loan interest rate differs anywhere between 7.35 per cent and 29 per cent per annum.

  • Loan proceeds 

Gold loan proceeds differ between Rs 1,500 and Rs 5 crore.

  • Repayment tenure 

Repayment tenure varies anywhere between 7 days and 240 months.

  • Minimal documentation

In most scenarios, a zero score or income statement is needed. The gold loan gets sanctioned depending on the gold’s value pledged as collateral or security.

  • LTV ratio 

The loan to value ratio (LTV) ratio for gold loans is capped by the RBI at 75 per cent. It means that you can avail a loan equaling 75 per cent of the gold pledged value.

  • Usability 

Gold loans, like personal loans, can be utilised for various purposes with no restriction on their end usage.

  • Processing time 

Gold loan is processed quickly as there’s minimal documentation required. So, what are the crucial parameters that decide the gold loan’s rate of interest? Let’s have a look.

Parameters impacting the interest rate of gold loans – 

Before approving the gold loan, banks or lenders look out for a specific parameter to decide the rate of interest it can set for you. They want to ensure the decision to offer you the loan proceeds is a safe one. Listed here are some of the important key parameters that decide the gold loan’s interest rate –

  • Level of income – 

One of the crucial parameters that lenders consider when approving your gold loan application is your income. Lenders become more confident regarding your repayment potential when they see your income level is high and thus offer you a lower rate of interest. A lower income level, however, attracts a higher rate of interest. It can be said that interest rate and income level are proportional inversely.

  • Gold’s market price – 

Gold’s present market prices even determine the rate the lender is looking to offer you. Typically, loan proceeds would be nearly 60 to 70 per cent of the gold article’s value kept as collateral or security. If the interest rate of gold is high, then the article’s value even rises and hence the lender’s risk falls. Lenders will feel highly comfortable with extending a low-interest rate. However, in the case the prices of gold are down, the risk of lenders rises and the rates even rise.

  • Principal loan proceeds – 

The interest rate even depends on the amount taken as a loan or principal constituent. The higher the amount of principal is, the lower would be your rate of interest. This is because the lender has a higher value loan security pledged as collateral and hence, they are comfortable with providing a lower interest rate.

  • External benchmark rates for lending – 

When the RBI (Reserve Bank of India) makes changes to its rates and policies, the gold loan’s rate of the interest event change. The gold loan’s rate is thought to be attached to an external lending interest rate, which could be the repo rate of ten years government bond’s rate. They impact your gold loan’s rate even and are proportional directly.

  • Credit score –

A credit score is one of the crucial parameters looked upon by lenders when approving your loan application. The higher your credit score, the higher your chances of availing attractive rate of interest. The lower your score, the higher would be your offered rate of interest. Thus, it is best for you to conduct your own research of all the available options and next proceed with placing an application for a loan.

Who are the key gold loan lenders in India?

Lender Loan proceeds Rate of interest
State Bank of India Between Rs 20,000 and Rs 50 lakh 8.35 per cent per annum
Axis Bank Between Rs 25,000 and Rs 25 lakh 17 per cent per annum
ICICI Bank Between Rs 50,000 and Rs 1 crore Between 10 per cent and 19.8 per cent per annum
HDFC Bank Between 25,000 and Rs 25 lakh Between 7.6 per cent and 17.05 per cent
Mannapuram Finance Between Rs 1,000 and Rs 1.50 crore Between 12 per cent and 29 per cent per annum
IIFL Up to 75 per cent of the value of gold Between 9.96 per cent and 27 per cent per annum
Muthoot Gold loan Rs 1,500 onwards  Between 9 per cent and 22 per cent per annum
Bank of Baroda Up to Rs 25 lakh From 9.75 per cent onwards
Kotak Bank Between Rs 20,000 and Rs 50 lakh From 12.50 per cent onwards
Union Bank From Rs 3,000 onwards From 7 per cent per annum onwards

What are the gold loan’s eligibility criteria?

Age – Anywhere between 21 and 70 years of age.

Employment status – Self-employed, salaried, farmers, businesspeople, etc.

What are the documents required to apply for a gold loan?

Important documents required to apply for a gold loan are –

  • Address proof – Passport, Aadhaar card, voter ID, driving license and letter issued by the NPR or National Population Register.
  • Identity proof – Passport, Aadhaar card, voter ID card, driving license

Dos while placing an application for a gold loan – 

Check the gold’s purity level – 

The lender generally takes gold that has a purity level of 18 carats. Ensure to check out the gold’s purity level beforehand. This would avoid any later disappointments and frauds.

Select a reliable lender – 

As a gold loan is secured in nature, the lender you apply with for a loan must be a reliable loan provider. This is because once you repay your whole loan proceeds, you would also want back the gold that you deposited as security or collateral. So, you must choose a reliable lender who has no records of conducting any fraud in the past.

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