Getting a gold loan? Here is how to get the best interest rates

• Borrowers can get loans of up to 75% of the gold's appraised value, as mandated by RBI regulations.
  
• Before getting a gold loan, it is crucial to research and compare various lenders in the market.
  
• The choice of repayment tenure and frequency can significantly influence the interest rate on your gold loan.
  

A gold loan is a secured loan where borrowers pledge their gold jewellery as collateral. It offers quick approval, minimal documentation, no credit checks, competitive interest rates, and flexible loan amounts based on the gold's value.

Since a gold loan is a secured loan, the interest rates are lower than unsecured loans like personal loans. Interest rates on gold loans can vary between 8.5% to 11% per annum or more in some cases.

Here are five essential tips to help you secure the best interest rates when applying for a loan against your gold jewellery.

Conduct thorough research

Before getting a gold loan, it is crucial to research and compare various lenders in the market. Different financial institutions and lenders offer varying gold loan interest rates, so doing your research can save you a substantial amount of money in the long run.

Understanding loan- to- value ratio

One of the most critical factors impacting gold loan interest rates is the loan-to-value (LTV) ratio. This ratio determines how much money you can borrow against the value of your gold. Borrowers can get loans of up to 75% of the gold's appraised value, as mandated by RBI regulations.

Choose the right repayment plan

The choice of repayment tenure and frequency can significantly influence the interest rate on your gold loan. Opting for a shorter repayment period with more frequent instalments can often lead to a lower interest rate.

On the other hand, selecting a longer repayment plan with fewer payment intervals may result in a higher interest rate. You can choose to repay your interest on a monthly, bi-monthly, quarterly, half-yearly, or annual basis as per your convenience.

Monitor gold market prices

Interest rates on gold loans can be affected by external factors unrelated to the loan itself. Keep a close eye on fluctuations in global gold prices, as they can impact interest rates.

Generally, when the price of gold rises, interest rates tend to decrease, making loan repayment more manageable. Being aware of these market trends can help you time your gold loan application to secure the best interest rates.

Maintain a stable income

Some lenders may request proof of your monthly income during the gold loan application process. Demonstrating a steady income source can work in your favour, as it shows your ability to repay the loan.

This can lead to lenders offering you lower interest rates. However, many lenders do not require income proof for a gold loan application. In such cases, your KYC documents are sufficient.

By understanding the loan-to-value ratio, selecting an appropriate repayment plan, monitoring gold market prices, and maintaining a stable income source, borrowers can increase their chances of securing favourable terms for their loan against gold. Keep these tips in mind to make the most out of your gold assets while securing the funds you need.