Understanding How Gold Interest Rates Work
Gold has deep-rooted significance in the Indian culture, and Indians account for a large percentage of gold consumed in the world. In Indian culture, gold is much more than just an investment. People also treat them as a family heirloom, with religious connotations, status symbols, and gift items. Since gold is expensive and its cost increases year by year, many Indians hold gold dear to their hearts. However, in times of a financial crunch, gold also serves as an asset that people may mortgage for a short period and use the value locked in it. While looking for a gold loan, the key is to find the lowest gold loan interest rate to get the best value for money.
There are several NBFCs in India offering gold loans to customers. With gold prices touching their all-time highs, this is the right time to get a high gold loan amount to cover your planned or urgent expenses. However, before applying for a gold loan, it is crucial to understand how gold interest rates work.
Factors Affecting Gold Loan Interest Rates
Let’s look at the factors affecting gold loan interest rates.
Loan Amount to Borrow: The loan amount plays a crucial role in determining the gold loan interest rates. Although the loan amount depends on the gold value, lenders often approve a limited percentage of the collateral’s estimated price. The higher the loan amount, the higher will be the interest rate. Therefore, borrowers must assess their financial requirements and apply for the minimum online gold loan amount necessary to cover the expenses.
Credit Score: Lenders offering gold loans largely rely on the borrower’s credit score to determine their creditworthiness. Credit bureaus give credit ratings to individuals based on their repayment history, debt-to-income ratio, credit utilization rate, credit length, and diversity. Ranging from 300 to 900, a high credit score indicates responsible credit behavior. Although gold loans are secured, those maintaining a high credit score have increased chances of getting the lowest gold loan interest rate.
Monthly Income: Gold loans have relaxed eligibility criteria. The borrowers need to bring in their gold, assess its value, and get approval for an appropriate loan amount. However, lenders still want to check the borrower’s income to assess their repayment capacity. A higher-income projects an individual as a low-risk borrower, for whom the lender may agree to lend at a lower interest rate.
Debt-to-Income Ratio: The borrower’s debt-to-income ratio is more important for lenders than income. An individual with a high income may have a lower DTI ratio than a lower-earning individual due to differences in their financial obligations. The debt-to-income ratio refers to the percentage of an individual’s income they pay towards their existing loan EMIs, insurance premiums, house rent, utility bills, and credit card outstanding bills. The more disposable income an individual has, the lower interest rate they may get on an online gold loan.
Repayment Term: Lenders offering flexible repayment terms allow borrowers to select their repayment terms with EMIs suitable to their budget. A longer loan tenure means smaller EMIs but higher interest costs. However, a shorter loan term means bigger EMIs but the reduced interest paid by the loan term-end. Therefore, many lenders have a gold loan EMI calculator, using which borrowers can estimate their EMI amount and select an appropriate repayment tenure.
Tips to Reduce Gold Loan Interest Rate
After understanding the factors affecting gold loan interest rates, these are a few tips to get the lowest gold loan interest rate:
- Improve Credit Score: Few ways to improve credit score include:
- Staying consistent with the existing loan EMIs and credit card bills
- Paying off existing loans and outstanding credit card balances
- Minimizing credit card usage to reduce credit utilization ratio
- Diversifying credit portfolio with different types of loans and cards
- Maintaining old accounts to lengthen credit history
- Borrow Minimum: Calculate the costs and borrow the minimum possible to cover the expenses.
- Choose a Shorter Loan Term: Choosing a shorter loan term will reduce the interest outgo significantly. Therefore, choose the shortest possible loan term with EMIs adjustable within the monthly budget.
The gold loan interest rate directly affects the loan EMIs to be paid. The lower the interest rates, the lower the interest outgo. Therefore, choose an online gold loan lender offering the best interest rates and get the best value locked in your gold assets.