One important issue that affects your money is the interest rate on gold loans. It is crucial to comprehend how the gold interest rate is calculated as well as the variables that affect its fluctuation. The elements that might assist you in understanding how to calculate gold loan interest are listed below.
- Loan amount:
The size of the loan is a key factor in determining your interest rates. It depends on the total amount of gold that you have promised. You will be able to borrow more money if the gold is worth more. Additionally, the interest rates on gold loan would be higher the larger the loan amount. Interest rates are set by lenders using the gold value as collateral.
- Monthly income:
In comparison to gold loans, a gold loan is simpler to apply for and easier to get approved for. However, lenders will examine your monthly income before determining the interest rate. Your ability to make payments depends on your monthly income. Your ability to repay will be higher if your monthly income is larger. You can obtain cheaper interest rates if you have a bigger monthly income. This is because lenders will be confident in your ability to make timely loan payments. A low monthly income may also have an impact on the size of your loan.
- Evaluation methods by banks to determine the interest rates:
To estimate the interest rate on a gold loan, lenders typically use two different types of appraisal techniques. They are the repo rate-linked lending rate and the MCLR-linked lending rate (internal) (external). Based on the assessment process used, gold loan interest rates vary from lender to lender. The repo-rate linked lending rate and the MCLR-linked lending rate are the terms used to describe the bank’s lending rate that is tied to the repo rate.
- Credit score:
The interest rate on your gold loan is determined in part by your credit score by banks and NBFCs. A high credit score indicates a borrower’s good repayment history and creditworthiness. A credit score determines an applicant’s eligibility for unsecured borrowing. whereas a gold loan’s interest rate is influenced by credit score.
Interest rates have a direct impact on your repayment amount in each loan scenario. If you choose lower interest rates for a gold loan as well, the repayment amount will be smaller compared to high gold loan interest rates. Gold Loan offers you three more repayment alternatives in addition to the EMI, unlike other loans. These techniques include interest payments at regular intervals and bullet repayment. However, regardless of the method of repayment, you select, Gold Loan interest rates will have an impact on the total amount of interest.
How does the interest rate on the loan against gold impact the amount you must repay? Let’s use an example to better grasp this. Let’s say a candidate wants to choose a 2 lakh INR for 24 months Gold Loan. To further understand how interest rates, affect the payback amount, we are taking two alternative interest rates in this example: 10% and 15% per year.
With a 10% annual interest rate, the monthly payment would be INR 9,229, and the total cost of interest would be INR 21,496.
However, if we assume an annual interest rate of 16 per cent, the monthly payment would be INR 9,793 and the interest expense INR 35,023.
So, as you can see from the example above, the applicant would need to pay an additional INR 500 per month if they choose a higher interest rate for their gold loan as opposed to one that is lower, at 10% annually. The applicant would also have to pay an additional INR 14,000 for interest expenses during the loan. Because of this, you ought to choose a gold lending facility with reduced interest rates.