Irrespective of the type of loan and its purpose, the interest rate always determines its affordability. Gold loans, thus, are no exceptions. Usually, gold loan interest rate is affordable owing to their secure nature, and this as a USP has bolstered its growth as well. According to data released by the RBI, gold loans have increased by 66% in August 2021 to reach Rs.629 billion.
Nonetheless, borrowers can consider some simple tips to qualify for lower interest rates on gold loans and reduce the debt burden.
Top 6 tips to get an affordable gold loan interest rate
Here are some tips to avail an affordable interest rate on gold loans –
Meeting lender-specific eligibility criteria
Probably, the easiest way to secure a competitive interest rate on gold loans and enjoy better terms is by meeting the eligibility criteria specified by a lender. Here are some basic eligibility requirements for this financial product –
- Age should be in the range of 21 to 70 years
- Salaried/self-employed/ farmers/traders and every other individual in possession of gold articles are eligible
- Must be residing Indian citizens
In the case of this secured loan type, the credit score does not make a huge difference. Thus, borrowers with a low CIBIL score can also avail of this credit.
Mentioning all income sources
Since lenders take an individual’s repayment capacity before approving a loan application, they emphasize the monthly income. Therefore, one needs to meet this parameter to get a competitive loan against the gold interest rate and other favourable terms.
In this regard, applicants can include their additional income sources in the loan application. Besides their primary source of earning, they can list down their interest income from different investments, rental income, and likes to boost their chances of securing approval and an affordable interest rate. Additionally, income stability also plays a part here, so be mindful of it.
- Decide on the loan amount
As per the regulation of the Reserve Bank of India, gold loan lenders can provide an LTV of up to 75%. It means, if you are pledging gold articles worth Rs.1 lakh, you can receive up to Rs.75,000 as a credit.
However, with a higher loan amount, the risk of lending increases for a financial institution, compelling lenders t levy a higher interest rate. Therefore, individuals need to be more attentive while looking for a better gold loan interest rate.
Pledge gold with a higher carat count
Another way to get the lowest gold loan interest rate is by submitting gold items with a higher carat count. Typically, lenders accept gold articles ranging from 18 carats to 24 carats for this purpose. In this case, a financier will levy the lowest interest rate on gold items of 24 carats and vice versa. The reason is, gold with a higher carat count attracts better resale value.
- The current market price of gold
Besides its carat count, the market price of gold articles also affects the interest rate charged by financiers. The trick to remember here is that when gold prices are surging, one can secure a higher loan amount, and the interest rate remains competitive.
Whereas, when this price is low, this concept reverses. One can then get a comparatively low loan amount, and the interest rate will also be higher.
Shop for better rates
To get a competitive gold loan interest rate, it is imperative to compare multiple lenders. Borrowers can take the assistance of a gold loan calculator for this purpose. It will help them to see how a change in interest rate affects their total borrowing cost.
Since online devices like these provide an instant result, borrowers can make their decision quickly. Also, they can use it to know the maximum loan amount they are eligible for.
Besides these tips, borrowers need to be mindful of the benchmarking method a lender uses to comprehend the movement of interest rates. Also, they can keep the loan-related documents handy to streamline this process further.
As a financial product, gold loans come with a host of borrower-friendly benefits, and an affordable interest rate is a major one. Nonetheless, individuals can still keep in mind the pointers mentioned above to qualify for a better gold loan interest rate and lower their total cost of borrowing.
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