| Yaer | Opening Balance | Interest | Principal | Closing Balance |
|---|---|---|---|---|
| 2023 | ₹ 50,00,000 | ₹ 1,48,831 | ₹ 1,48,831 | ₹ 48,95,481 |
| 2024 | ₹ 48,95,481 | ₹ 4,27,080 | ₹ 3,32,969 | ₹ 45,62,512 |
| 2025 | ₹ 45,62,512 | ₹ 3,95,844 | ₹ 3,64,204 | ₹ 41,98,308 |
| 2026 | ₹ 41,98,308 | ₹ 3,61,680 | ₹ 3,98,369 | ₹ 37,99,939 |
| 2027 | ₹ 37,99,939 | ₹ 3,24,312 | ₹ 4,35,738 | ₹ 33,64,201 |
| 2028 | ₹ 33,64,201 | ₹ 2,83,436 | ₹ 4,76,614 | ₹ 28,87,587 |
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The formula for calculating gold loan EMI is as follows:
E = P x R x (1+R)^N
————————
[(1+R)^N-1]
P - the principal amount that is borrowed
R - the rate of interest imposed
N - tenure in the number of months
For example, if Rs. 1,00,000 is the amount borrowed (P), 12% is the rate of interest imposed (R), and 60 months is the tenure (n), the EMI to be paid using the above formula will be:
1,00,000 x 0.01 x (1+0.01)^60 / [(1+0.01)^60-1] = Rs.2,224 (per month)
The rate of interest (R) is calculated monthly i.e. it is calculated as (Annual Rate of interest/12/100) in this case (12/12/100 = 0.01)
Unlike other loans such as car loans or home loans, the factors affecting gold loan interest rates are slightly different. Take a look at these below -
The rate of gold is determined by a multitude of factors. These include inflation, demand-supply chain, and festivals (this is especially important in a country like India where the purchase of gold is linked to festivals and other celebrations). Other determinants include the procurement of gold by the government as well as global movement or activity in gold prices.
The amount of loan you wish to procure will be determined by the amount of gold you are willing to pledge and this in turn has an impact on the interest rate charged. The loan amount provided can range anywhere between 65% to 80% or even above the overall value of the gold. The higher the loan amount availed, the higher the rate of interest as the risk is higher for the lender.
As is the case with other loans, the longer the repayment period, the higher the interest rate. A longer repayment period will reduce the EMI to be paid every month but also spells more of a risk for the lender. However, gold loans generally come with shorter repayment tenures ranging from a few months to about 5-6 years.
There are a number of banks and other financial institutions in the market today that provide gold loans to customers. Currently, two main types of benchmarking methods are used to decide the interest rate - Repo Rate Linked Lending Rate (External) and MCLR Linked Lending Rate (Internal). Based on which method is being used, the interest rate will vary.
Credit scores are an important determinant of an individual’s creditworthiness. Those with high credit scores are deemed to be less risky when it comes to repayments and can generally avail a loan at lower interest rates. Having a credit score of above 700 (CIBIL or Experian) is therefore recommended.
A gold loan is a secured loan that is provided against collateral of gold (jewellery, coins, bars). These loans are popular as they have a short to medium repayment term and relatively lower interest rates as compared to unsecured loans.
A number of banks and other financial institutions today provide gold loans to customers at competitive rates.
EMI or Equated Monthly Installment is a periodic payment (every month) made by the borrower to the lender in order to repay a loan. The amount paid as EMI will depend on the amount availed, the interest rate charged, as well as repayment term chosen.
Gold has always been a popular asset and now individuals can also avail loans against the gold that they possess. The advantages of gold loans are -
Any Indian citizen between the ages of 18 to 70 who owns gold (jewellery, bars, coins) can avail gold loans. However as the eligibility criteria vary from one financial institution to another, applicants must ensure that they check for this in advance.
Some of the important factors that impact the interest rates charged on gold loans are -
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