How Is Gold Loan Interest Calculated?

Gold Loan Interest Calculated

About Gold Loan

Gold loan is an instalment loan, given that the repayment is issued by the lenders toward gold leverage. Banks are offering this loan to lenders by holding gold jewellery, which are returned to the lender after recovery of the balance of the loan due.

A loan backed with gold ornaments is provided for a short to medium term period and is usually handled within minutes without any need for tiresome documentation.

Gold Loan Eligibility Calculator 

Banks offer Gold Loan to borrowers who have the appropriate eligibility requirements: 

  • The jewellery you choose to borrow against will be around 18 and 24 carats. One can use an online gold loan emi calculator to check the eligibility. 
  • As per RBI recommendations, banks lend to freshly minted gold coins, but the overall weight of the coins may not surpass 50 grams for the borrower. 
  • Financial institutions do not lend to gold bars and ETFs (exchange-traded funds). 
  • You may apply for a gold loan in situations of individual usage, business use as well as agricultural use. Gold loan does not require any CIBIL credit.

Gold Loan Advantages 

Gold loan is a preferred solution of individuals for a variety of reasons to meet immediate economic requirements. Some of these factors include: 

  • Gold Loan Interest is tiny compared to many other available alternatives, such as a private loan.
  • Gold Loan term is very versatile, and its period ranges from a few days to five years.
  • Many institutions and NBFCs do not impose prepayment fees for gold loans.
  • Only limited paperwork is required to receive this loan.
  • Quick repayment of the loan is yet another much-loved function of the gold loan.

Interest On Gold Loan

Many Indian banks and NBFCs provide very lower interest rates, which are typically 2-3 percent greater than the basic rate. Interested borrowers could use the Gold Rate Interest Tool to find out all the new interest rates provided by India’s major institutions.

The Gold Loan EMI predictor makes it much easier to select the most appropriate Gold Loan Program proposed by the different banks. This is because you can use the EMI calculator to measure different interest rates for gold loans.

 How is the valuation of my gold jewellery/ornaments computed?

The market value of your gold shall be determined based on the market cost of gold per gram during the day of credit application. When gold jewellery is made, only certain pieces that are gold are being used to measure the value; other metals, stones, and gems are omitted from the measurements.

Rate of interest Of Various Banks 

Gold loan or loan against gold jewellery is an instalment loan in which the customer guarantees his gold ornaments as collateral to receive cash. Although other loans need proof of employment or compensation, one only has to pledge gold and send KYC documents to use the gold loan. Here is the list of different banks and institutions that provide gold loans with varying rates of interest.

SBI Bank – 9.15%

Axis Bank – 9.75%

HDFC Bank – 10.05%

ICICI Bank – 10.00%

Yes Bank – 11.25%

Muthoot Gold Loan – 12.00%

Canara Bank – 9.10%

Induslnd Bank – 11.25%

Punjab National Bank – 10.5%

Bank Of India – 10.70%

The interest rate of gold loan depends on several factors.

  •   Value Of The Loan –The sum lent by the lender plays an important role in deciding the rate of interest. Interest rates are typically higher for short term loans and vice versa.
  •   Loan to Cost Ratios –Banks offer higher interest on gold loans with a higher LTV ratio. The higher the debt to the cost of the jewellery, the higher the interest rate and vice versa.
  •   Connection with the financial institution –Banks are providing lower interest rates on jewellery loans to their current account holders with a quick turnover.

Checklist Of Things Required For Gold Loan

  • Identity proof
  • Residential Address Proof Or Ownership Proof
  • Photo Identity Proof
  • Passport Size Picture

Gold Loan EMI And Interest Calculation

Let’s understand the calculation of gold loan EMI and its interest rate with an example below and understand the essentials while performing the calculation.

P = The Principal Amount Of Loan

r = Rate of interest every month 

n = Loan Period In Months

For instance, you consider a Gold loan of Rs. 1,00,000 from any financial institution at a 12% interest rate with a period of 12 months(1 year).

In this scenario, r = 12/12*100 = 0.01

Therefore, EMI = 1,00,000*0.01* (1+0.01)^12/([(1+0.01)^12]-1)

EMI = Rs. 8,885

It ensures that you have to compensate for Rs. 8,885 for 12 months to redeem the loan and interest amount. The actual amount you spend = Rs. 8,885 * 12 = Rs. 1,06,620 which contains Rs. 6,620 of interest on Rs. 1,000,000 of the loan sum for 1 year. It is recommended to use an online gold loan emi calculator to find the emi and interest component of a loan and thereby choosing the right lender.

Gold Loan Prepayment and Foreclosure

No one wishes to keep spending interest on a loan if you have the surplus funds set aside to pay it back. If you want to settle a portion of your loan in advance of time, it’s called portion prepayment. If you plan to pay the entire loan amount within the deadline, it is called foreclosure.

Banks usually incur prepayment or mortgage charges in these cases, varying from zero to even 1%. Hence you should be vigilant about whether the low-interest rate gold loan you get comes with heavy prepayment or foreclosure fees. Many loans often come with lock-in duration and cannot be returned before the deadline.

Factors influencing Gold Interest Amount 

Mentioned here are a few of the factors that influence Gold Loan Interest Rates.  

  •   Inflation:with inflation increasing, the buying power of local currency decreases, and so does the interest rate.
  •   Economic Growth:Rates of interest rising rise with better economic development, which will lead to increased demand for loan 
  •   Demand and supply:The interest rate on a mortgage against gold rises if demand for a loan rises.

Are Gold Loans Available Without EMI?

Many gold loan programs are designed as emergency loans, in which the loan is compensated at the end of the period in the form of a single transaction. Consumers who use gold loans with bullet payments that have to pay monthly or quarterly expenses to the institution for which they receive lucrative rebates from creditors.

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