Gold Loan is one of the most popular financial solutions for getting quick funds by leveraging your gold. One of the factors that you must consider while taking a loan is the interest rate and how it is calculated. In this blog, will help you understand how to calculate interest rates, calculation process, the factors that influence these rates and tips to secure the most competitive terms. So, let’s dive in!
3 Steps to Calculate Interest Rate on a Gold Loan
The steps to calculate the interest rate on a loan against gold involves the loan structure and the repayment option. Here is how you can calculate the interest rate on your Gold Loan:
1. Identify the Key Parameters
Your loan interest rate is calculated on the following key parameters:
- Principal Amount: The loan amount you borrow against your gold.
- Interest Rate: The percentage of interest charged to you on borrowed amount.
- Loan Tenure: Duration of the loan.
- Gold Purity and Weight: Purity and weight of gold influence the loan amount your will receive against your Gold Loan.
2. Type of Interest Rate
The interest rate on Gold Loan can be of two types:
- Fixed Interest Rate: The in the fixed interest rate that interest rate remains constant throughout the loan tenure.
- Floating Interest Rate: This type of interest rate varies based on the market conditions and rate.
3. Formula Calculation: Typically, simple interest is followed to calculate the Gold Loan. Here is how you can calculate one:
Interest rate = PxRxT, where:
P= Principal amount
R= Rate of interest
T= Tenure
For example, you are pledging your gold against ₹10,00,000 with an interest rate of 10% for 1 year, the interest rate would be calculated as:
₹10,00,000 x 0.10 x 1= ₹1,00,000
Also Read: How is a Gold Loan Amount Calculated?
5 Factors Influencing Gold Loan Interest Rates
Here are 5 primary factors that influence interest rates:
- Loan Amount
This is the amount of money that you borrow against the gold you are pledging. The borrowed amount impacts the interest rate as the lender may offer a better interest rate on higher loan amount.
- Loan Tenure
The loan tenure plays an important role in calculating the interest rate and overall loan amount. Generally, a shorter loan term comes with lower interest rates and vice versa.
- Current Market Price
The market value of gold keeps on fluctuating due to the changes in the market demand for gold. As the value of gold increases the lender may adjust the interest rate to manage their risk. When the price of gold is high you may receive favourable terms due to the increase in rate of the current market price.
- Loan-to-Value Ratio
The loan-to-value (LTV) ratio refers to the amount of financing you can receive relative to the value of the gold pledged as collateral. As per the guidelines of the Reserve Bank of India (RBI), financial institutions can offer a loan amount of up to 75% of the pledged gold's value.
- Company Policy
Interest rates may vary across lenders, as each institution follows distinct policies that influence the loan interest rates they offer.
Also Read: What is Gold Loan or Loan Against Gold?
Interest Rate and Charges for a Gold Loan
If you are planning to get a loan against your gold with an attractive interest rate and minimal charges, check out Poonawalla Fincorp’s interest rate and charges below:
| Interest Rate | Starting from 11% p.a. |
| Loan Amount |
₹25,000 to ₹50,00,000 |
|
Loan Tenure | 12 Months |
| Processing Fees | Applicable as per scheme with maximum cap of 1% of loan amount |
| Stamp Duty | At actuals as per state laws applicable from time to time. |
| Default Charges | 6% per annum on outstanding loan amount |
| Notice Charges | INR 200/- + applicable taxes per notice |
| Foreclosure Charges |
Within 30 days – up to 1% of loan amount + applicable taxes |
| Part Release Charges |
INR 150/- + applicable taxes per transaction |
| Auction Charges |
Rs.1500/- + applicable taxes |
| Safe Custody Charges | INR 5/-per gram of net weight per month, payable at the time of closure/foreclosure or renewal |
| Hidden Charges |
Nil |
Tips to Choose the Best Interest Rate for Your Gold Loan
Consider the following tips to get the best interest rate on your Gold Loan:
- Compare Offers: Check and compare the interest rate offered by different lenders and choose the interest rate that suits you the best.
- Repayment Structure: Understand the repayment structure, if it is EMI based, bullet repayment mode or both.
- Check Additional Fees and Charges: Check for the processing fees, penalty charges, and valuation charges other than the interest rate.
- Negotiate with the Lender: Having a good or high credit score can help you get favourable interest rates.
Also Read: 7 Benefits of Taking a Gold Loan
To Conclude
Calculating and understanding the factors that influence the Gold Loan interest rate is essential to manage your loan. By understanding the factors such as loan amount, tenure, gold purity and repayment structure you can make an informed decision. Getting a loan against your gold can effectively address your financial requirements. However, it is essential to approach it with clear understanding. With the help of Gold Loan from a trusted lender like Poonawalla Fincorp, you can meet all your financial needs with ease. So, wait no more and get the true value of your gold now!
Frequently Asked Questions
1. What is the interest rate offered by Poonawalla Fincorp on Gold Loan?
The interest rate offered by Poonawalla Fincorp on Gold Loan starts at 11% per annum.
2. What are the documents required for getting a loan against gold?
You can avail of a Gold Loan by submitting the KYC documents, such as a copy of your PAN card, Aadhaar card, driving license, voter ID, and passport
3. I’m 18 years old; can I get a loan against gold?
No, you must be between 21 and 65 years old to avail of a Gold Loan from Poonawalla Fincorp.
4. What is the form of gold accepted by Poonawalla Fincorp?
Any gold jewelry or ornament between 18 and 22 karat is accepted by Poonawalla Fincorp.