How To Get The Lowest Gold Loan Interest Rate
Introduction
- Brief overview of gold loans and their growing popularity
Gold loans are a type of lending product that are secured by gold collateral. The gold collateral serves as a safety net for the lenders and can be liquidated in case of non-repayment. Gold loans are low cost and easy to avail loans, and have been famous in India for many decades, as lenders in both organised as well as unorganised sector participate in the lending activity. The gold loan market has seen a remarkable growth over the last couple of years due to increasing popularity of the product, ease of availing a loan, low interest rates, and none to minimal credit history requirement.
- Importance of interest rates in determining total loan cost
Interest rates are one of the biggest contributors to the total cost of borrowing when it comes to gold loans. These can be a significant part of the costs based on the term of loan, i.e. if the loan term is longer then the total cost paid in the form of gold loans would be higher and vice versa. This is also due to the fact that gold loans as a lending product generally do not attract additional charges, unlike other forms of lending such as personal loans.
Hence, this makes it imperative to understand the importance of interest rates in determining the total cost of loan.
- Purpose of the article
The purpose of this article is to provide actionable tips to secure the lowest gold loan interest rate which can potentially help the borrowers save huge amounts of money which would’ve been otherwise spent in the form of interest rates, and essentially to nudge you to make gold loan rate comparison before availing one.
Understanding Gold Loan Interest Rates
- Types of interest rates: fixed vs. floating
Interest rates can be broadly classified into two, fixed interest rate and floating interest rate. Fixed interest rate as the name suggests, is when the applicable interest rate for the loan is fixed at the start of the loan application, and this does not change till the loan is paid back in full. Floating interest rate on the other hand, is a dynamic interest rate which is based on an underlying bank rate. As and when the reference rate changes, so does the applicable interest rate of the loan. This form of interest rate can be beneficial for the borrowers if rate cuts are anticipated in the market.
However, it is important to note that maximum lenders only offer fixed interest rates gold loans.
- Components that influence gold loan rates
There are various factors that influence gold loan rates, a major one of them being the applicable repo rates, which has an influence on all types of lending in the market. Another factor is the category, purpose and amount of the loan. And lastly, the risk associated with lending to a borrower.
- Common range of interest rates offered by banks and NBFCs.
Interest rates offered by various banks, NBFCs may be very close, but depending upon the segment of the loan, it can also vary to a big extent. Also, since the rates are subject to change, it is prudent to check with the lenders on the applicable gold loan interest rate offers when you want to avail a gold loan. indiagold offers one of the most affordable gold loans with interest rates starting at just 0.85%* per month!
Factors That Affect Gold Loan Interest Rates
There are various factors that influence the gold loan interest rates. If you are thinking of availing a gold loan, keeping these factors in mind can help avail a gold loan with minimum interest rate.
- Loan Amount and Tenure : Loan amount and the tenure may not necessarily have a big impact on the applicable gold loan interest rate, however in general these factors do have some weight, and while borrowing from a bank, these factors can come into play and increase or decrease the applicable rate of interest. Hence it is recommended to only take the amount of loan that you actually require and can pay off without hiccups in the stipulated time.
- Credit Score and Repayment History : Credit score and repayment history reflects if the applicant has been a responsible borrower or not. If these two factors are not in the borrower’s favour, and signify delays in repayment, or default, then the lenders may increase the rate of interest to account for the increased level of risk with lending to the borrower.
- Borrower's Relationship with the Lender : Borrower’s relationship with the lender has an influence on the offered interest rates in many cases. If the borrower already has multiple loans with the lenders, and all are being repaid on time, then the lender may give the best gold loan rates of interest citing the ongoing relationship with the borrower.
- Market Conditions and RBI Policies : Market conditions and RBI’s policies regarding lending are subject to change, and these have a major influence on the lending market. An unfavourable change in the policies may make lending expensive and vice versa.
Tips on How to Secure the Best Gold Loan Interest Rates
- Compare Offers from Multiple Lenders
- Use online aggregators or visit bank websites : Gold loan comparison can help you collate current offers from various lenders, and essentially help in making a responsible decision with respect to taking a gold loan.
- Negotiate Using Existing Banking Relationships
- Loyalty or salary accounts may help. Hence, negotiating with your existing relationship can help avail favourable terms on loans.
- Choose a Shorter Tenure
- A shorter tenure can help service the debt obligation quickly, and this essentially decreases the lender’s risk which can translate into a lower interest rate in certain cases. However, it is recommended to opt for a tenure in which you can comfortably pay-off the debt obligation without any hiccups.
- Avoid Over-Borrowing Against Gold
- Over borrowing has a negative impact on your finances. It makes you pay more in repayments than what you can actually afford to. This often leads to delayed or missed repayments, which has a negative impact on your credit profile.
- Maintain a Good Credit Score
- Maintaining a good credit score can help a borrower avail loans easily and that too with some favourable terms from the lenders. Having a good credit score goes a long way if you wish to avail any sort of lending in the future, as it essentially helps the lenders assess the risks associated with lending you.
- Consider Seasonal or Promotional Offers
- Festive or special campaigns may offer lower rates. If you’re alert enough, then you might be able to make use of these special schemes or offers and avail a gold loan at a more favourable rate.
Mistakes to Avoid
- Not checking for hidden charges or processing fees : More often than not, the borrower skips the terms and conditions while availing a loan, and later the additional charges take them by surprise. To avoid this, it is recommended to understand all the applicable charges. By doing so, you can save a lot of money. And this is also a great measure on which you can compare various lenders. Lenders like indiagold have no hidden charges which makes it a no-brainer option for many!
- Ignoring prepayment or foreclosure conditions : Prepayment or foreclosure charges are one of the most ignored charges which impacts many borrowers. While looking for low interest gold loan providers, it is important to also give weight to these charges and take a decision accordingly.
- Falling for extremely low rates from unverified lenders : An offer that sounds too good to be true, often is. It is recommended to only borrow from reputed and trustworthy lenders to be on a safer side. indiagold ensures strict security and safe storage of collateralised gold in lockers, and insurance on the gold.
Best Practices When Taking a Gold Loan
- Keep documentation ready for faster processing: Having all the relevant documentation can help expedite the application process, and essentially a faster disbursal.
- Understand the full cost of the loan (APR) : Many borrowers consider the lowest gold loan rates as the only component of the loan to be the cost, however additional costs such as processing fees, foreclosure charges, penalty charges, and many more such charges end up increasing the total cost of borrowing.
- Monitor gold prices : Loan eligibility changes with value. An increase in the market price of gold can translate into a higher loan eligibility and vice versa. Hence, active monitoring can help you time the gold loan application really well.
