Gold loans help borrowers meet their short-term credit needs without requiring extensive documentation. While banks and other financial institutions offer gold loans, Non-Banking Financial Companies cater to the credit requirements of individuals from diverse backgrounds.
When taking a gold loan from an NBFC, borrowers must consider the gold loan interest rate offered. Unlike banks, which generally follow a standardized gold loan interest rate for gold loans, interest rates offered by NBFCs can vary significantly among different lenders. This variation can be due to several factors, such as the lender’s perceived risk associated with the borrower. NBFCs consider several factors when determining the gold loan interest rate, including the loan amount, loan tenure, gold purity, and the borrower’s creditworthiness.
Listed below are the factors that NBFCs use to determine gold loan interest rates in India
Gold jewellery is used as collateral in a gold loan, and the eligibility criteria for obtaining one are more flexible. However, lenders will assess your monthly income before determining the interest rate. This is to ensure that you can repay the loan without defaulting. You are more likely to make timely repayments if you have a higher monthly income and no existing credit obligations. A higher income can improve your chances of getting approved for a loan at a lower gold loan interest rate. As a result, NBFCs offer lower interest rates to individuals with higher incomes, as it reduces the risk of default. Conversely, lower-income individuals may face higher gold loan interest rate and lower gold loan amounts. It is important to note that lenders may also consider other factors such as credit score, repayment history, and employment status when deciding the gold loan interest rate.
Gold loan interest rate in India constantly fluctuates and can be revised by lenders frequently. Non-Banking Financial Companies are crucial in determining gold loan interest rates in India. These rates are usually determined using benchmarking methods such as the Marginal Cost of Funds based Lending Rate, and Repo Rate linked Lending Rate. As the highest monetary authority in India, the Reserve Bank of India regulates the country’s monetary policy. These benchmark rates are a reference point for banks and other financial institutions when they lend or borrow money. When there is a change in the benchmark interest rates, financial institutions adjust their Marginal Cost of Funds based Lending Rate, or Repo Rate linked Lending Rate accordingly. Financial institutions use the MCLR and RLLR to determine the interest rates on various loans, including gold.
Your credit score plays a crucial role in determining the gold loan interest rate you receive. A high credit score demonstrates good repayment behaviour and creditworthiness and affects interest rates for unsecured loans, while gold loans influence eligibility and interest rates. If your credit score is good or high, you may qualify for lower gold loan interest rate than borrowers with lower scores. In India, banks and financial institutions generally regard a credit or CIBIL score of 750 or above as good. Also, lenders may apply a spread, markup, or margin to RLLR and MCLR rates when determining gold loan interest rate, which may vary based on your credit score. With a good credit score, lenders may reduce this margin due to your past repayment behaviour, resulting in lower interest rates for your gold loan. Thus, your credit score is a significant factor in determining your gold loan’s interest rates.
Gold loan amount
When availing of a gold loan from an NBFC, borrowers need to understand that the loan amount is a crucial factor in determining the interest rate. The gold loan interest rate directly depends on the value of the gold jewellery a borrower pledges as collateral. Since gold prices have surged recently, borrowers can expect to receive a higher loan amount against their gold ornaments. NBFCs offer a loan amount ranging from 65% to 90% of the overall gold value. The higher the value of the pledged gold or gold price, the more significant the loan amount can be sanctioned by the lender. The gold loan interest rate can also be calculated using a gold loan calculator, which considers various parameters such as the loan amount, loan tenure, and other relevant factors.
NBFCs in India determine gold loan interest rates based on various factors, including the current market value of gold, loan-to-value ratio, borrower’s credit score, and the prevailing economic conditions. In a gold loan, the gold loan interest rate is vital in determining the loan amount a borrower can obtain. A gold loan calculator is an effective way to determine the total amount that needs to be repaid. Gold loan calculator help borrowers calculate the interest amount and total repayment amount based on the loan amount and tenure. Gold loan calculator will provide the exact repayment amount, making it easier for borrower to plan their finances accordingly. Gold price changes depending on factors such as global economic conditions, demand and supply, and geopolitical tensions.