Understand about Gold Loans Interest Rates

Introduction
One of the main factors you have to check before buying a loan is the interest you have to pay. Higher the interest that you have to pay, the lesser attractive the loan is. When you buy a gold loan, you will have to pay a certain amount of interest called the gold loan interest rate on the amount you borrowed.
The interest rate you have to pay on your gold loan will depend on several factors. The interest rate depends on market conditions and even the purity of the gold you provide the borrower.
Let us look at a few of these Gold Loan factors:
Loan amount:
The amount of loan you receive from your lender depends on the purity and fineness of the gold you provide. And the interest rate that you pay depends on the amount of loan that you receive. Higher the loan amount, the higher the interest rate. Lenders generally have a loan to value ratio of 75%. That means they will provide you with a maximum of 75% of the value of the gold that you provide them. The more you receive from the lender as a loan, you have to pay back as interest.
Monthly income
Gold loans don’t have the exact requirements by borrowers as other personal and business loans. When you apply for a gold loan, the lender will make a comprehensive check on everything from your credit score to your occupation to your plans for your business. But in a gold loan, there are very few eligibility criteria you have to fulfil. One of the criteria that your lender would check is your monthly income. Higher the income, higher the confidence the lender will have in you. That will automatically reduce the amount of interest rate that the lender would charge you. The lender is confident that you will pay back your loan and charge you a lesser interest rate. But, if your income is less, there are chances of the lender charging you with a higher interest rate.
External benchmark lending rates:
The interest rate you are charged will depend on the external benchmark to which the lender’s interest rate is linked. All loans sanctioned by banks are said to be connected to an external benchmark. When the Reserve Bank of India increased policy rates, the lender would immediately increase interest rates. Still, when the Reserve Bank of India cut rates, the interest rates were not immediately changed. RBI asked the lenders to link their interest rates to an external benchmark. That could be the RBI repo rate or the yield on the 10-year government bonds. That rate will affect the gold loan interest rates. Every time India’s Reserve Bank changes its policy rates, the interest rate offered on gold loans will also change.
Credit score:
Along with your monthly income, one of the factors your lender will check to judge your credibility is your credit score. This score will indicate your loan repayment behaviour. The higher the score, the higher the amount of confidence the lender will have in you. That will also mean that the lender will charge you a lower interest rate as there is no doubt that you will be able to repay the loan and not go into default.
Additional Read: Why Gold is the Perfect Investment for You This Diwali
Conclusion:
The interest rate is one of the first factors to check before applying for your gold loan. Most people apply for a gold loan even though it has a high interest rate just because it is quick means of receiving a loan. You should never rush to buy a loan with a high-interest rate, higher the interest rate, higher the equated monthly instalments that you have to pay.
Additional Read: Tax Benefits On Personal Loans
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