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5 key factors that determine gold loan interest rates

5 key factors that determine gold loan interest rates

5 key factors that determine gold loan interest rates
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By Anshul  Oct 21, 2022 5:59 PM IST (Published)

In India, gold has always been a friend in distress as well as a Dhanteras-Diwali must-buy. The yellow metal as well as gold loans come in handy during cash crunch or financial stress situations. Here's everything you need to know about gold loans and their interest rates.

Gold loans have become very popular lately, thanks to their flexibility and security. Banks and other financial institutions in India offer gold loans, with amounts ranging from Rs 1,500 to Rs 1.5 crore. The repayment tenure of these gold loans ranges between seven days to 240 months, according to reports.

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How can one take gold loan?
Individuals can pledge gold articles as collateral or security, which should be  between 18-24 carats. For the same, the borrowers can contact any bank or non-banking financial company (NBFC).
What is the current interest rate on gold loans?
The interest rates on gold loan, availed by pledging gold, are relatively lower than other types of loans, and range between 7.35-29 percent per annum, according to Bankbazaar.
Here are gold interest rates offered by key lenders:
Name of the BankInterest RateLoan Amount
Axis Bank13.50% p.a.to 16.95% p.a.Rs 25,001 to Rs 25 lakh
HDFC11% p.a. to 16% p.a.Rs 10,000 onwards
Canara Bank7.35% p.a.Rs 5,000 to Rs 35 lakh
Muthoot12% p.a. to 26% p.a.Rs 1,500 onwards
SBI7.00% p.a. onwardsRs 20,000 to Rs 50 lakh
Kotak Mahindra10.00% p.a. - 17.00% p.a.Rs 20,000 to Rs 1.5 crore
IndusInd Bank11.50% p.a. - 16.00% p.a.Up to Rs 10 lakh
Manappuram9.90% p.a. to 24.00% p.a.As per the requirement of the scheme
Bank of Maharashtra7.10% p.a.Up to Rs 20 lakh
PNB7.70% p.a. to 8.75% p.a.Rs 25,000 to Rs 10 lakh
Bank of Baroda9.00% p.a. - 9.15% p.a.Up to Rs 25 lakh
(Source: Bankbazaar)
What factors affect gold loan interest rates?
Repo rates
Gold loans rates change if and when the Reserve Bank of India (RBI) adjusts its repo rate — the rate at which it lends money to commercial banks. Any change in the repo rate would impact the bank's MCLR, which leads to a change in interest rate for the customer, said Rajesh Shet, Co-Founder and CEO at SahiBandhu.
Tenure and amount
The tenure and amount are also factored in when it comes to interest rates — the shorter the tenure and smaller the amount, the higher the interest rate and the longer the loan tenure, the lower the interest rate.
"If we lower the loan tenure, the overall interest amount will reduce but the monthly instalment will increase, which can become an added expense to monthly budgets. Smaller loan sizes often have slightly higher interest rates to cover the fixed costs lenders pay to obtain and manage the loan during repayment," Shet told CNBC-TV18.com.
Loan to value (LTV) ratio
The LTV ratio also impacts the interest rates. It is directly proportionate to the interest rates on gold loans.
"Higher the LTV ratio, the higher the interest rate would be since it brings with itself relatively more risk. Therefore, the monthly instalments will be lower with a lower LTV," Shet said.
Price of gold in the market
If the price of gold is high in the market, the value of the gold ornaments or coins being pledged will also be high. Lenders will then offer a lower interest rate since the risk associated is low.
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