A loan taken against gold is a secured loan, and the interest rate is applied when the equated monthly installment (EMI) begins. Loans taken against gold as collateral offer a low lending rate.
Lending institutions offer up to 75% loan-to-value (LTV) over and above essential paperwork and appraisal calculated based on purity, weight, and the current rate of gold in the Indian market.
Gold Loan Interest Rates in July 2024
Here are the interest rates on gold loans provided by major lending institutions in India.
Bank of Baroda
Bank of India
Bank of Maharashtra
Central Bank of India
Indian Bank
Indian Overseas Bank
Punjab and Sind Bank
Punjab National Bank
State Bank of India
UCO Bank
Axis Bank
DCB Bank
Dhanlaxmi Bank
Federal Bank
HDFC Bank
IndusInd Bank
Karnataka Bank
Karur Vysya Bank
Kotak Mahindra Bank
South Indian Bank
IndusInd Bank
Tamilnad Mercantile Bank
The interest rates on gold loans are accurate as of July 3, 2024.
Calculation of Gold Loan Interest Rate
Gold is priced according to its current market value, and any fluctuation in the market price will affect the floating interest rate on loans against gold pledged as security. This amount is directly proportional to the purity scale and weight of the gold. Banks then add their lending rate to the Reserve Bank of India’s (RBI) repo rate.
One key determinant is the loan-to-value (LTV) cap by the RBI, on which a borrower will get a loan against the value of gold. Banks lend up to a 75% LTV of the market value of the pledged gold ornaments.
For example, if the value of gold is INR 10,000 and the LTV is 75%, the maximum loan amount the customer can get would be INR 7,500.
Eligibility Criteria of Gold Loan
Lending institutions in India allow individuals of Indian citizenship above 18 years of age to apply for a gold loan, provided they produce proper documents for purchasing jewelry. Depending on the value of the ornaments, lending institutions may provide gold loans up to 75% of the precious metal’s value for a tenure ranging from three months to three years.
A gold loan doesn’t require a guarantor or proof of income. Gold can also be used as collateral when getting a personal loan, home loan, or car loan.
Document Required for Gold Loan
Here is the list of documents required for applying for a gold loan:
- Two passport-size photographs
- Proof of identity and address: Any of the following documents: driving license, passport copy, voter ID copy, Aadhaar card, ration card.
- Bill or invoice of jewelry purchased.
Factors Affecting Gold Loan Interest Rate
Individuals can borrow loans against hallmarked gold ornaments over and above an appraisal check to determine the purity and weight of the metal to arrive at the gold loan amount. Several factors can affect loan amount, and the popular ones include:
Gold weight: The amount of gold loan is related to the weight of the yellow metal.
Gold purity: Lenders provide loans based on the purity of gold after the appraisal check, mainly above 18 carats.
Fluctuation in gold prices: Loans against gold are directly proportional to the current market value based on the metal’s purity scale.
Loan amount: Depending on the value of the gold, lenders may provide up to 75% of the value of the precious metal as a loan.
Loan tenure: Interest rates vary widely according to tenure. Usually, the shorter the tenure, the higher the interest rate. Conversely, loans taken for maximum duration have lower interest rates.
Frequently Asked Questions (FAQs)
How do you check the value of gold?
When lending institutions lend money against gold as collateral, its weight and purity (ranging 18K to 24K) is considered as value.
Will there be any KYC checks?
Yes — Financial institutions conduct Know Your Customer (KYC) norms and checks as stated by the Reserve Bank of India (RBI) to get information on borrower’s details such as identity, credit history, income source, etc.
Will I get a gold loan if my credit score is low?
Yes—As gold will be pledged with the bank as security, financial institutions avail of gold loans even to borrowers with low credit scores.
How can I repay the loan against gold?
Financial institutions offer borrowers the flexibility to repay the loan principal and interest as a lump sum amount, a.k.a. bullet payments (instead of equated monthly installments, or EMIs) at maturity, usually 6 to 36 months.
Charges related to gold loans
Various charges are associated with bank gold loans, such as processing, gold appraisal or inspection, documentation, handling, and safekeeping. Such charges are, however, subject to deduction as per the borrower’s relationship with the bank.
Gold loan interest rate in India versus other retail loans
Loans are availed against the pledge of gold ornaments and jewels as security attracts low lending rates. Gold can also serve as security while availing retail loans such as home loan, car loan, and education loan.
How can I reduce the interest rate on gold loans?
Borrowers can get lower interest rates on gold loans by applying for shorter or bullet repayment periods. As mentioned above, most banks do not charge a foreclosure or processing fee on the loan.