Gold has been a major investment cornerstone for thousands of years. Today, banks and other lenders offer a gold loan ranging from 18k to 24k. These loans are secured with the customer’s gold, which is kept at the bank as collateral for the loan.
If you’re interested in gold loans, it’s important to take into consideration the gold loan interest rate that you will have to pay. Failing to consider all the factors that affect your interest payments can make the loan less advantageous for you.
Keep reading to find info on how gold loans work, as well as how to properly use a gold loan calculator.
How Do Gold Loans Work?
A gold loan can be very profitable for banks since they don’t have to worry about assets performing poorly. Jewelry and other gold ornaments are kept at the bank and serve as collateral in case the borrower fails to pay the monthly installments on the loan.
Checking Quality
When checking gold loan eligibility, the lender will first want to verify the purity of the gold being offered as collateral. This is an important step, as it determines the gold value, and has a large effect on how much the bank will be willing to lend.
KYC Checks
Know-your-customer checks are standard checks recommended by the Reserve Bank of India and are intended to evaluate various aspects of a potential borrower. These include the borrower’s identity, credit history, and reasons for wanting a gold loan.
Approval
Once the previous steps are finished, the bank will propose loan terms and these terms must be agreed upon by both the bank and the borrower. When the parties agree to the terms, the loan is approved and the loan amount will be credited to the borrower.
Gold Loan Factors
There are a number of factors that affect the terms of a gold loan. Understanding these factors is an important step in understanding whether or not a gold loan is right for you. These factors are as follows:
Interest rate Type
Many borrowers assume that there is one type of fixed interest rate for gold loans. However, there are a number of different interest types that may be charged by lenders. These include:
- Compound interest
- Jumping interest
- EMI
- Penal interest
Loan Tenure
The tenure of a loan is the period of monthly payment obligations for the borrower. Lower loan tenure typically results in a higher rate of interest, since borrowers will have less time to repay the loan.
Advantages of a Gold Loan
- Lower interest rates compared to other secured loan options
- No restrictions on the usage of the money being borrowed
- No credit score requirement or proof of income requirement
- Flexible repayment tenure
- Instantaneous loan disbursal
Who Should Use a Gold Loan?
The features of a gold loan make it an attractive prospect for a few different situations. These include borrowers requiring short-term loans, borrowers with low credit scores, and borrowers who have gold jewelry or gold ornaments but require personal loans.
How To Calculate Gold Loan Interest Rate
Gold loan interest can be easily calculated using a gold loan calculator from various websites. However, borrowers may want to know how exactly these interest rates are calculated.
Things You Will Need
In order to calculate the interest rate on a gold loan, you will need some information on the loan in question. This includes the equal monthly installment (gold loan EMI) loan amount, the principal gold loan amount, and the tenure period of the loan (in months).
These numbers will also be used if you decide to go with an online calculator for figuring out the interest on your gold loan.
Gold Loan Interest Rate Formula
If you wish to calculate the gold loan interest rate yourself, you can use this formula: E = P x r x (1+r) n / [(1+r) n-1)] Where E is the equal monthly installment (gold loan EMI) amount, P is the principal loan amount, r is the rate of interest, and n is the tenure period of the loan in months.
If this looks like Greek to you, then there’s no shame in simply using an online interest rate calculator for your gold loan.
How To Use a Gold Loan Calculator
- Log onto a website that has an interest calculator for your gold loan. There are many options available online.
- Enter the necessary values in the form fields for the calculator (EMI amount, principal loan amount, and tenure).
- The calculator should be able to calculate the interest rate of your gold loan using this information. You may want to check calculators on a few different websites to verify.
