While taking any kind of loan, the primary deciding factor that a borrower uses to pick one lender over the other is the interest rate he would have to pay on the loan taken. Just like any other loan, in the case of a gold loan too, a higher interest rate means a higher cost you will have to pay for taking the loan in the form of EMIs.
A gold loan is a type of loan where you keep your gold ornaments as collateral to get a desired loan amount. The interest rate on the gold loan per gram is different for different lenders. It is advisable to compare across different platforms to select the most reasonable interest rate on the gold loan per gram.
Let us understand how the gold loan interest rate is calculated and what are the things that influence the gold loan interest rate.
How is the Calculation for Gold Loan Interest Rate Done?
The gold loan interest rate is calculated based on the loan amount you avail. With a leading brand like Muthoot FinCorp, you can choose from different attractive gold loan per gram schemes as per your loan requirement and get a comfortable loan experience.
The interest rate on gold loans with Muthoot FinCorp starts as low as 12% per annum and is calculated using a simple interest method.
Understanding the Per Gram Rate
You can visit the official website of Muthoot FinCorp and use their free online gold loan calculator to calculate how much loan you can avail of, per gram of gold that you pledge.
You can either enter the loan amount you want to take, and the calculator will tell you how many grams of gold you will have to pledge to get your desired amount.
Another way to use the calculator is, you can enter the grams of gold you want to pledge, and the calculator will tell you how much loan you can get for the exact grams of gold you want to give as collateral.
It is important to note that:
- The gold loan per gram interest rate is calculated based on the 22-carat gold value.
- The interest rates calculated using the calculator are for 100% Loan To Value (LTV) schemes.
Factors That Affect the Gold Loan Interest Rate
There are various factors that are taken into consideration while calculating your interest rate on a gold loan per gram. These factors are:
The loan amount:
The principal loan amount you want to take is the primary deciding factor for your gold loan per gram rate of interest. In turn, the total loan amount you can get is directly linked to the value of the gold jewellery you are pledging. Usually, you can get anywhere between 60-90% of the declared value of your pledged gold as a loan. Since a higher loan amount results in a higher interest rate, it is advisable to analyse your actual need before taking the loan.
Monthly income of the borrower:
Since a gold loan is a secured loan and you get a percentage of your pledged gold as a loan amount, the eligibility requirements of this loan are not very stringent. However, to ensure that the borrower will be able to pay back the EMIs on time, the lender may look at the borrower’s source of income to decide the rate of interest on the loan. If the borrower has a dependable source of income, the rate of interest on his loan is lower. On the other hand, if your income is unsteady or low, or if you have major financial commitments apart from this loan, it negatively affects the loan amount you can get and also the interest rate charged on it.
The lender’s benchmarking methods:
The benchmarking methods used by the lender have a significant impact on the rate of interest on loans against gold. If the rate of interest on a gold loan for a given lender is linked to the Rep Rate Lending Rate (RRLR), there will be a change in the borrower’s EMI every three months. On the other hand, if the interest rate is linked to the Market Linked Lending Rate (MLLR), the interest rate will change every six months or every year for the borrower. Therefore, it is a wise thing to understand the benchmarking method used by a lender to see how the interest rate you have to pay will be affected.
The gold loan per gram rate affects the EMI you have to pay towards your loan. By taking care of the above-mentioned factors, you can ensure a lower interest rate, and ultimately a lower EMI on your gold loan.