Gold has become a crucial asset for borrowing due to its higher prices. Borrowing against gold can provide a simple and easy solution. It has been a great choice for collateral so far. However, the interest rate you pay can vary significantly as with any loan. You can get the best deal on gold borrowing by shopping around for the most competitive rates, choosing a shorter loan term, negotiating the interest rate, and maintaining a good credit score.
If you are considering taking out a gold loan, you may be wondering how to get the lowest interest rate possible. Here are some tips for getting the best deals on gold borrowing.
Tips To Get The Best Deal on Gold Borrowing
- Shop Around: Shop around for the best interest rates on gold loans. Compare the interest rates offered by various and choose the loan with the most competitive interest rate. The gold loan interest rate is a very critical factor to consider when you take out a gold loan. This is because it impacts the total cost of the loan. Getting the lowest gold loan interest rate will help you save quite a lot of money in the long run.
- Maintain A Good Credit Score: Gold loans are secured loans, but your credit score still has a major influence in determining the interest rate you will be offered. You will get lower interest rates for a higher credit score. All lenders will be willing to lend. Make sure that you maintain a good credit score by paying your bills on time, maintaining a low credit utilization ratio, and not having too many hard inquiries.
- Loan to Value Ratio: The loan to value ratio is the percentage of the gold’s market value the lender is willing to lend. The LTV ratio can differ from one lender to another, and it affects the interest rate charged. Previously, the RBI had capped the loan to value at 75 percent, and it has been raised to 90 percent until March 31, 2023. Higher LTV may attract higher interest rates. Gold loan interest rates are comparatively lower than unsecured loans since gold loan is a secured loan.
- Monthly income: A stable and high monthly income may reduce the interest rate charged. This is because lenders are sure of your repayment capacity. Whereas, a low monthly income means a higher interest rate.
- Market Conditions: Interest rates are influenced by market conditions such as inflation, demand for gold, changes in government policies, and fluctuations in gold prices in India and across the world. RBI repo rates also matter. Lenders use this to set the interest rates for their loans.
- Loan Amount: The loan amount is a major factor affecting the interest rates on gold loans. Higher the loan amount, higher the interest rate and lower the loan amount, lower the interest rate. Higher interest is charged to ensure that the lender can face the increased risk associated with lending you more funds.
- Loan Tenure: The loan tenure is yet another factor that has an impact on the gold loan interest rate. Short term loans have higher interest rates as compared to long term loans.
Strategies For Obtaining The Lowest Gold Loan Interest Rates
- Compare Lenders: You can get the best gold loan interest rates by comparing between various lenders. The interest rates differ across lenders, and you should explore all the options before you choose a lender. Research online and contact lenders to get quotes. Also ensure to ask about the loan processing fees and other charges, such a the appraisal fees and early repayment penalties that add to the overall cost of the loan.
- Negotiate the interest rate: If you have a good credit score and an impeccable repayment history, you can negotiate with lenders for the interest rate. You can explain why you deserve a lower interest rate by showing your credit history, income, or assets. You can also use the quotes you receive from other lenders as leverage to negotiate a lower rate.
- Go In For a Shorter Loan Term: The length of your loan term can impact your gold loan interest rate. Typically, gold loans are short-term credit facilities with repayment durations varying between a week and 3 years. When you plan the repayment duration, plan it smartly such that you repay the loan within the stipulated duration. You can choose a shorter loan term if you can afford higher monthly repayments. When you do this, you can save money on the total interest outgo in the long run.
Eligibility Criteria for a Gold Loan
- Age – 21 to 70 years
- Employment Status – Salaried, self-employed, farmers, business people, etc.
Documents Required to Apply for a Gold Loan
- Identity proof – Aadhaar card, passport, voter ID card, and driving license
- Address proof – Aadhaar card, passport, voter ID card, driving license, and letter issued by national population register
Things to Remember While Applying for a Gold Loan
What should you do?
- Check the purity of the gold you want to pledge – Lenders usually take gold that is 18 carats pure or more. Check the purity of your gold article before itself to avoid fraudulence and regret later.
- Look for a credible lender – Since a gold loan is a secured loan and requires a gold article to be kept as security, the lender you go to must be a credible person. You will want this to be a fair deal and not incur losses because of a fraudulent lender. Thus, you should check the credibility of the lender before you apply for a gold loan.
- Check all lender options available – All lenders evaluate the applicant’s profile differently. Their offer would vary in terms of repayment tenure, interest rates, etc. Look for the lender who suits your requirements the best.
Gold loans offer lower interest rates compared to other loans as they are secured. However, since various lenders offer different interest rates and may have different eligibility criteria, you must research thoroughly before you choose the gold loan best suited for you.