Finance

How do NBFCs Determine Gold Loan Interest Rates in India?

A gold loan is a secured loan provided by both banks and non-banking financial companies to their customers. It is among the most popular options to manage finances and meet financial requirements. Currency, the gold rate in the Indian market is high and probably the right time to seek a loan and fulfil your major needs that require a large sum of money.

 

A higher gold value means a higher loan amount against gold ornaments at affordable interest rates. The question is, how do NBFCs determine gold loan interest rates? It is the most crucial question borrowers usually ask because interest rate directly affects the repayment amount. So, it becomes paramount to know the process of determining interest rates to choose the best interest rate for yourself.

 

Several NBFCs follow the same parameter to determine interest rates. For instance, the Muthoot FinCorp gold loan is one of the available options that offer flexible repayment tenure. The Muthoot Blue gold loan rate is usually low, which is measured based on the following factors.

 

Factors affecting a gold loan interest rate

 

The primary factor influencing Gold Loan Interest rates is the loan amount taken in consideration by majority of the NBFCs.

 

  • Gold loan amount

 

The loan amount is one of the most crucial factors considered by NBFCs to determine your Gold loan interest rates, and the loan amount depends on the value your gold jewellery holds. The gold prices are at an all-time high, which means that you could get a higher loan amount. Generally, the gold loan amount ranges from 65% to 90% of the overall gold value.

 

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If the value of your gold ornament is high, you are eligible to get a higher loan amount, which reflects on the interest rate as well. A higher loan amount means a higher interest rate. For instance, A Muthoot gold loan values at Rs. 8 lakhs and above charges 15% as gold loan rate. It is usually calculated through a gold loan interest calculator.

 

So, always check the required loan amount before choosing your gold loan interest rate.

 

  • Monthly income

 

Since your gold jewellery is pledged as security, there are lenient eligibility criteria. Almost anyone with the possession can apply for a gold loan. However, lenders prefer to check your monthly income before deciding on an interest rate. It is to ensure that you will not default in your repayment. If you have a higher income, you can make repayments on time, provided there are no existing credit obligations.

NBFCs offer lower interest rates to individuals with higher monthly income, as it assures the lenders that you can repay the loan amount with interest on time. On the other hand, a lower-income means higher interest rates and lower gold loan amounts. 

 

  • Benchmarking methods

 

There are usually benchmarking methods to decide gold loan interest rates, such as MCLR and Repo Rate linked lending rate. The interest rates differ from one lender to another, depending on which benchmark they follow. For instance, if the Reserve bank of Indian decides to cut basis points in any of the methods, there will be the same reduction of MCLR points or Repo Rate lending rate.

 

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So, the gold loan interest rates change from one lender to another, depending on benchmarking methods. The gold loan rates linked to RLLR are updated once in three months and reflected in your EMI, whereas the interest rates linked to MCLR methods are updated once every six months.

 

In short

 

For a gold loan, the interest rate directly affects your loan amount. For instance, if you opt for a Muthoot gold loan that offers lower Muthoot gold loan rates, the repayment shall also be lower. All these calculations can be done through a gold loan interest calculator. All you have to do is provide basic details like loan amount, rate of interest, and tenure.

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