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| June 6, 2022

5 Factors Affecting Gold Loan Interest Rate

One of the most important factors to consider when getting a loan is the interest rate. The higher the interest rate you have to pay, the less attractive the loan becomes. When you get a gold loan, you have to pay a fixed amount of interest known as the gold loan interest rate on the borrowed amount. The interest rate on your gold loan will be determined by various factors such as monthly income, loan amount, external benchmarking, credit score, and so on. Before approving your loan application, lenders consider the following factors to determine what interest rate you are eligible to:

Monthly income

Gold loans, unlike personal or business loans, have easy and simple requirements from borrowers. When you apply for a gold loan, the lender will thoroughly check everything from your credit report to your work to your business plans. A gold loan, on the other hand, has very few eligibility requirements. Your monthly income is one of the factors that your lender will consider.

The more your income, the more confident the lender will be in you. This automatically lowers the interest rate that the lender would charge you. Because the lender is confident that you will repay your loan, he or she will charge you a lower interest rate. However, if your income is lower, the lender may charge you a higher interest rate.

The market price of gold

The market value of gold also influences the gold loan interest rate in India. If the market price of gold is high, the value of the gold articles you are pledging will be high as well. The value of the gold articles you have pledged determines the overall loan amount. Lenders usually offer 60% to 90% of the total market value of your gold. Lenders will provide you with a lower interest rate in such cases because the risk is low. But if you are unable to pay the equated monthly instalments (EMIs) for any reason, the lender can simply recover the remaining amount by selling/auctioning the gold articles.

Principal loan amount

The loan amount you need has a major influence on the interest rate of your gold loan. You will get a higher interest rate if you want a higher loan amount. So, before deciding on gold loan interest rates, make sure to evaluate the needed loan amount and compare all available options. You can also use the gold loan interest rate calculator get an estimated amount.

External benchmark lending rates

Your gold loan interest rate will be determined by the external benchmark to which the lender's rate of interest is linked. All bank-approved loans are believed to be linked to an external benchmark. When the RBI increased policy rates, the lenders also increase the interest rates quickly. Even though, when the Reserve Bank of India reduced rates, the interest rates did not change instantly. The RBI asked that lenders link their lending interest rates to an external benchmark. That might be the RBI repo rate or the 10-year government bond rate. This rate will have an impact on gold loan interest rates. When the Reserve Bank of India (RBI) modifies its policy rates, the interest rate on gold loans changes as well.

Credit score

Your creditworthiness is defined by your CIBIL score, which is one of the most important factors considered by your lender when calculating the interest rate on a gold loan. A good credit score implies that you have good repayment history and can easily repay the loan amount without fail. The higher your credit score, the better your chances of qualifying for lower interest rates. Before you apply for a gold loan, check if you have a good CIBIL score and that any issues in your credit report are rectified ahead of time.

One of the first things you should look into before you apply for a gold loan is the interest rate. Some people apply for a gold loan regardless of the fact that it has a high rate of interest as it is a quick and easy way to get a loan. You must never rush into getting a loan with a high-interest rate; the higher the interest rate, the higher will be the EMIs you have to pay. Research different lenders and choose the one that provides lower rates of interest with a good portfolio like Muthoot Finance. Muthoot Finance provides its customers with a diverse range of gold loans with lower interest rates. Check Muthoot Finance gold loan interest rates here.

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