Amidst the pandemic, the majority of the Indian population lost their jobs or witnessed salary deductions. In such a situation, short-term financial emergencies can be met with personal loans and gold loans. However, a gold loan interest rate is lower than unsecured advances as it is backed by gold ornaments. Moreover, this gold loan does not come with any end-use restriction, and funds can be utilised to meet any personal and professional financial requirements.
Factors impacting interest rates on gold loan
Borrowers always need to compare financial lenders before settling for a loan variant to avail the lowest gold loan interest rate and avoid financial burden.
Following are the factors that affect a gold loan interest rate in the volatile Indian gold market-
Gold is a steady asset compared to currencies and holds an important value. It also acts as a protector against inflation. Due to this, investors are more inclined towards accumulating gold rather than currency. As a result, when inflation occurs, a massive demand for gold takes place and vice versa. Consequently, the price of gold will increase due to heavy demand from the customers.
- Price of gold in the Indian market
During any festival or wedding season, the price of gold goes up due to the huge demand from customers. Thus, this mismatch between demand and supply leads to an increase in gold prices. The demand for gold in the industrial sector accounts for 12% of the overall demand for gold in the country. Therefore, if the market price of gold rises, the value of pledged gold items will automatically increase. Lenders will offer a lower rate of interest on gold loan as the associated risk is low.
- Trends of interest rates
The interest rates on financial products highly rely on the demand for gold. With a hike in interest rates, individuals will try to sell gold to avail cash. Therefore, an increased supply of gold leads to a decrease in rates of this yellow metal.
Besides the factors mentioned above, reasons like production of gold and its cost impact the price of gold.
How is a gold loan interest rate calculated?
The gold loan interest rate can be calculated by deducting the principal amount from the total amount to be repaid. Borrowers can determine the amount that needs to be repaid by the end of repayment tenor by using an online gold loan EMI calculator.
Individuals need to input certain determinants, such as loan amount, tenor and interest rate as per their convenience and can make necessary adjustments with the figures until they reach a suitable amount.
By calculating the EMI or interest component, individuals can plan their repayment more effectively. Reputed financiers like Bajaj Finserv offer flexible repayment options such as-
- One can choose to pay the interest component periodically and pay principal amount at the tenor’s end.
- Borrowers can adopt traditional repayment method by repaying both interest and principal components as affordable EMIs.
- One can pay the entire interest amount initially and principal amount throughout the repayment tenor.
However, it is wise to discuss all repayment options beforehand and plan EMIs and pay-outs against a gold loan accordingly.
Nevertheless, the loan quantum and interest rate differ from one financial lender to another. Additionally, these financial institutions may charge processing fees during loan applications.
Gold loan interest rates, other features and benefits
Though individuals can opt for a personal loan to meet their financial demands, both the credit instruments vary from one another in terms of interest rates, accessibility, the flexibility of repayment etc.
If individuals are willing to opt for a gold loan, they can avail of a sizeable amount by pledging their gold ornaments. The gold loan interest rate is lower than other financial products as it is pledged with an asset. Moreover, the gold loan does not come with any end-use restriction, and funds can be utilized to meet any personal and professional financial requirements.
For any loan, the interest rate is extremely crucial as depending on it, the calculation of EMI is done. Being secured in nature, this loan variant comes with affordable interest. However, the above-mentioned factors affect a gold loan interest rate in the Indian market. Therefore, borrowers need to know everything about interest rates to maximise their benefits before applying for this loan.