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| February 21, 2024

6 Key Points to Understand About Gold Loan Interest Rates

In India, gold is one of the most trusted investment instruments. Most people choose to put their hard-earned money in the yellow metal, as it not only offers lucrative returns but also gives a sense of financial security in the long run. People buy gold in several different forms, such as coins, bars, jewellery, etc., and all these ornaments work as an asset. During any kind of financial emergency, you can always count on your gold assets. Apart from selling it off, obtaining a loan against gold ornaments is also a good option to quickly arrange a large amount of money. There are a number of government-authorised lending institutions offering hassle-free gold loans.

Understanding Gold Loan Interest Rates

In simple words, the amount charged against a gold loan is the rate of interest. It is a certain percentage of the principal amount and can vary from one lending institution to another. Since the loan interest is usually calculated on a yearly basis, the rate of interest also represents the annual charges. Nowadays, every lender offers several gold loan schemes with competitive interest rates. However, there are certain factors depending on which these interest rates can vary. Loan tenure, gold loan per gram rate, loan amount, etc. are a few things that help a lending institution decide the rate of interest applicable on a gold loan.

To make an informed decision, every borrower should understand how gold loan interest rates work and what some key determinants are.

Here are 6 important things that you should know about gold loan interest rates:

1. Every lending institution has a different interest calculation method.

Most people think that every lender uses the same process to calculate interest on a gold loan. However, different lending institutions have different interest calculation methods. Some perform this calculation on an annual basis, while others have monthly interest rates. Since the calculation method has a huge impact on the overall repayment amount, it is important to check the one used by your lender. The best way to do that is to use the online gold loan calculator offered by the lending institution. This will give you a fair idea of the total payable interest as well as the EMI amount.

2. The LTV ratio affects the rate of interest.

The LTV, or loan-to-value ratio, is among the most important factors taken into consideration when determining the rate of interest. In simple words, this is the percentage of the market value of your gold ornaments that you can obtain as a loan. This also means that the higher the LTV ratio, the larger the loan amount you can receive. However, it also results in a higher rate of interest, impacting the overall loan cost. So, it is not always a good option to choose a scheme with a higher LTV ratio, as it can also put an unnecessary financial burden on you.

3. Always check the terms and conditions related to the interest rates.

Every lender has its own set of terms and conditions when it comes to gold loan interest rates. For example, some banks and NBFCs give you the option to choose between a fixed and floating interest rate, while others only offer a fixed interest rate. Similarly, the conditions for any changes in the rate of interest can also vary. So, it is important to check all these things beforehand.

4. Gold prices determine the interest rate.

The market price of this precious metal never remains constant, and these fluctuations have a direct impact on the gold loan interest rate. Understanding how the current market price affects your loan can help you make a better borrowing decision. Generally, when the market rate of gold goes up, the rate of interest on a gold loan goes down.

Suggested Read: How Are Gold Rates Determined In India?

5. The RBI’s repo rate matters a lot.

In India, all the lending institutions decide their lending rate as per the Reserve Bank of India’s (RBI) repo rate. This is one of those factors that has a direct impact on gold loan interest rates. Since they are directly proportional, every time the RBI’s repo rate changes, the rate of interest on gold loans also changes.

6. The rate of interest can be different for two borrowers.

A gold loan is a type of secured loan where pledged gold ornaments work as collateral. An individual doesn’t need a good credit score, as the eligibility criteria is very flexible. Anyone who is over the age of 18 years can obtain a loan against gold assets of a certain purity. However, the rate of interest can vary from one applicant to another depending on things like monthly income, repayment frequency, etc.


At Muthoot Finance, we offer several different schemes for gold loans. You can explore all the options and choose one that meets your specific requirements. To get an approximate idea of the repayment amount and monthly instalment, you can use our online gold loan EMI calculator. Or, visit your nearest Muthoot Finance branch to know more.

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