How To Get The Best Interest Rate On Your Gold Loan?
Introduction
- Brief explanation of what a gold loan is
Gold loan is a type of a collateral backed lending product, where the amount that a lender lends to the borrower depends upon the value of the gold that the borrower is willing to collateralize. These loans are one of the most applied for, and are a cost-effective way to secure funds even for someone with little to no credit history or even unfavourable remarks in the credit profile.
- Importance of interest rates in gold loans
Just like any other lending product, interest rates are also an important part of gold loans. These rates signify the cost of borrowing. Higher the interest rate means higher the cost of borrowing. In other words, interest rates are the lender’s way to earn profits. It is imperative to keep the interest rates as one of the deciding factors while shopping for a gold loan, as being able to secure a loan with low interest rate is highly favourable for the borrower from a cost perspective.
- Purpose of the article: Tips to secure the lowest possible interest rate
The purpose of this article is to discuss the factors that impact the interest rates and ways using which a borrower can get best interest rates on gold loans.
Compare Interest Rates From Multiple Lenders
- Importance of shopping around
It is extremely important to shop around for interest rates before choosing a lender for your gold loan requirement. Comparing the offerings by multiple lenders can help the borrower determine the overall market trends and make an efficient decision which can help save costs.
- How to compare offers: online aggregators, lender websites, or visiting branches
There are multiple ways by which a borrower can compare lenders. One is to surf online on aggregator platforms or doing general web search on the rates being offered by different lenders. This is a slightly less reliable method, as interest rates are subject to change, and chances are that the information on the aggregator website may not be latest or reliable. Another way is to check lenders’ websites for the general interest rates offering, and the last method is to visit the lenders’ branches and check for any available offers which can help bring down the interest rates.
- Mention of government banks vs private lenders vs NBFCs
Gold loan is a very competitive market. Almost all the lenders offer comparable to identical interest rates making it almost impossible for the borrower to make a decision solely on the basis of interest rates. What the borrowers can do is that they can check the interest rates and the convenience they’re getting along with it. This allows the borrowers to make a sound decision.
Check Your Loan Eligibility and Credit Profile
- How CIBIL score or credit history may impact the rate
One of the most famous tips to get low interest on gold loans is to check CIBIL score before applying, and ensuring that you have a solid credit history, as it highlights responsible borrowing. However, this may not be valid in all the cases, since largely many lenders give less weightage to the credit profile of the borrower in making lending decisions, as the loan is backed by the gold collateral, which essentially mitigates the lending risk. However, some lenders may offer a more favourable lending rate to borrowers with a solid credit history.
indiagold offers gold loans without the requirement of a credit history. This means that borrowers with low credit score, or unfavourable credit history can also avail a gold loan.
- Maintaining a good financial profile to negotiate better terms
For someone wondering how to negotiate gold loan interest rates, maintaining a good financial profile can help a borrower negotiate better terms with the lenders. A good financial profile helps the lenders assess the risk level more effectively. This may work fantastically with lenders like banks.
Opt for a Shorter Loan Tenure (If Possible)
- How shorter tenures often come with lower interest rates
A shorter loan tenure for loans means that the lenders would be able to recover their money quickly, and helps them decrease the interest rates as their risk exposure also decreases. It is prudent that the borrower assess the applicable interest rates for different tenures to be able to choose a more cost effective gold loan.
- Calculating total interest outgo based on tenure
Interest is calculated on the principal, and it is measured in percentage terms. A higher loan term translates to a higher interest outflow by the borrower, as the interest will be applicable as long as the principal dues are pending with the borrower. Keeping loan tenure to minimum can help decrease the overall money payable in interest charges.
Negotiate With Your Existing Bank
- Leveraging an existing relationship with your bank
If you have an existing lending relationship with a bank, then you can most certainly try to negotiate better terms with the lending bank. Banks can assess the risk exposure on a relationship level across different products like personal loans, credit cards, home loans, etc. and would be able to tailor a gold loan offering most suited to your needs.
- Benefits of being a long-standing customer
Being a long-standing customer can help you avail perks from the banks. Perks such as no processing fees, low interest rates, higher LTV are offered to customers with a long-standing relationship with the lenders.
Choose the Right Type of Interest Rate
- Fixed vs floating interest rates
In fixed interest rate loans, the rate of interest is fixed at the start of the loan tenure and that interest rate remains constant. Whereas, in loans with floating interest rates, the lenders decide the rate of interest on the prevailing lending rate plus the lenders’ premium. In case the underlying prevailing lending rate/bank rate changes, the rate of interest on the gold loan also changes.
- Which option generally offers lower costs in gold loans
Although both rates can be cost efficient for the borrower, one should always compare both the rates offered by the lenders’ and have a fair idea on expected rate hikes/cuts to be able to make a better decision.
Avoid Hidden Charges
- Look beyond the interest rate:
- Processing fees : Processing fees is a type of charge that can increase the cost of borrowing substantially. Especially, for loans of a smaller ticket value. Processing fees can have an impact on the total cost of borrowing. Hence, it is essential to look beyond the gold loan with lowest EMI rates and also consider other factors that can increase the total cost like processing fees.
- Prepayment penalties : Many lenders charge an additional fee in case the borrower wants to make an early payment towards their total outstanding. This prepayment charge can increase the overall cost of the loan and is counterproductive to the borrower’s efforts towards repaying the loan early. It is recommended to also compare lenders on the basis of applicable prepayment charges if you plan to repay the entire amount before loan closure date.
- Valuation or storage charges : Many lenders charge valuation or storage fees from the borrower. This is a type of convenience fee which always increases the cost of borrowing.
- Total Cost of Borrowing (TCB) as a better measure
To determine how cheap or expansive a loan is, the borrower should always take into consideration the total cost of borrowing and not the interest rate alone. Total cost of borrowing is a sum of the money paid in the form of interest, processing fees, hidden charges, and any other convenience fees. It is the total money paid to the lender minus the total principal amount of the loan. Total cost of borrowing (TCB) is a more accurate measure, and calculating the same before availing a loan can help the borrower choose the most pocket friendly loan offer across multiple lenders.
Consider Online Gold Loan Platforms
- Rise of fintechs offering competitive rates
We are in an age of all things digital. Even lending has evolved massively, due to the introduction of streamlined online portals and the modernisation in the lending space, various fintechs offering gold loan solutions have come to light. Companies like indiagold is offering gold loans at extremely competitive rates starting at just 0.85%* per month!
- Digital process benefits: transparency, speed, and comparison tools
Digital processes are beneficial to both the lenders as well as the borrowers. For lenders, it enables for a more streamlined process, and helps use resources more efficiently. Whereas, for the borrowers, the digital processes help with quick processing of loan applications, fast disbursal, and easy tracking of applications. indiagold offers a fully online gold loan journey, offering a completely online process, quick processing, and disbursal in under 30 minutes!*
Use Gold of Higher Purity
- Impact of gold purity (22k vs 18k) on loan-to-value (LTV) ratio
The loan to value ratio (LV) dictates the amount of loan that is given in proportion to the value of the gold. Since 22k gold has a higher purity level compared to the 18k gold, it also commands a higher value, which essentially impacts the total amount that can be availed as a gold loan.
- Better purity may unlock better rates and higher amounts
Higher purity of gold commands a higher market value, and makes for a better collateral to secure a loan. A simple gold loan comparison between a loan taken against a 24k gold and 22k gold will highlight the difference that the purity of collateral can make.
