5 Key Factors That Determine Gold Loan Interest Rates


By Anshul IST (Released)


In India, gold has always been a friend in distress as well as a must buy on Dhanteras-Diwali. The yellow metal as well as gold loans are useful in times of cash shortages 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 and 240 months, according to reports.

How can one borrow gold?

Individuals can pledge gold items as collateral or collateral, which must be between 18 and 24 karats. For the same, borrowers can approach any bank or non-bank financial company (NBFC).

What is the current interest rate on gold loans?

Interest rates on gold loans, obtained by pledging gold, are relatively lower than those on other types of loans and vary between 7.35 and 29% per annum, according to Bankbazaar.

Here are the gold interest rates offered by major lenders:

Name of the bank Interest rate Amount of the loan
Axis Bank 13.50% pa 16.95% pa Rs 25,001 to Rs 25 lakh
HDFC 11% per year to 16% per year Rs 10,000 and more
Canara Bank 7.35% per year Rs 5,000 to Rs 35 lakh
Muthoot 12% per year to 26% per year Rs 1,500 and more
SBI 7.00% per year Rs 20,000 to Rs 50 lakh
Kotak Mahindra 10.00% per year – 17.00% per year Rs 20,000 to Rs 1.5 crore
IndusInd Bank 11.50% per year – 16.00% per year Up to Rs 10 lakh
Manappuram 9.90% per annum to 24.00% per annum According to plan requirements
Bank of Maharashtra 7.10% per year Up to Rs 20 lakh
GNP 7.70% per year to 8.75% per year Rs 25,000 to Rs 10 lakh
Bank of Baroda 9.00% per year – 9.15% per year Up to Rs 25 lakh

(Source: Bankbazaar)

What factors affect gold loan interest rates?

Pension rate

Gold lending 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 have an impact on the bank’s MCLR, which would result in a change in the interest rate for the customer, said Rajesh Shet, co-founder and CEO of SahiBandhu.

Duration and amount

Duration and amount are also taken into account when it comes to interest rates – the shorter the duration and the smaller the amount, the higher the interest rate and the longer the duration of the loan, the higher the interest rate is low.

“If we reduce the term of the loan, the overall interest amount will decrease but the monthly payment will increase, which can become an additional expense for monthly budgets. Smaller loan sizes often have slightly higher interest rates for cover the fixed costs that lenders pay to obtain and manage the loan during repayment,” Shet told CNBC-TV18.com.

Loan to value ratio (LTV)

The LTV ratio also has an impact on interest rates. It is directly proportional to interest rates on gold loans.

“The higher the LTV ratio, the higher the interest rate would be because it carries relatively more risk. Therefore, the monthly payments will be lower with a lower LTV,” Shet said.

Gold price on the market

If the price of gold is high in the market, the value of pawned gold ornaments or coins will also be high. Lenders will then offer a lower interest rate since the associated risk is low.


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