How does the Money View Gold Loan EMI Calculator Work?
Our gold loan interest rate calculator has been designed to provide users with a hassle-free experience. All you need to do is follow the steps given below-
• Enter the loan amount that you wish to borrow
• Enter the interest rate charged
• Lastly, add in the repayment tenure
And that’s it! Our gold loan calculator will display the EMI that you need to pay.
Using the gold loan EMI calculator will not only give you the right answer without any mistakes but will also help you plan out your finances better.
Gold Loan EMI Calculation Formula
The formula for calculating gold loan EMI is as follows:
P x R x (1+R)N / [(1+R)N-1]
• P stands for Principal Amount that is borrowed.
• R stands for Rate of interest imposed.
• N stands for Number or tenure in number of months.
For example, if Rs. 1,00,000 is the amount borrowed (P), 12% is the rate of interest imposed (R), and the 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)
Gold Loan Amortization Schedule
Knowing the impact of your EMI payments on your principal and interest amount is important. The schedule of your loan payments and the change in balance is referred to as the amortization schedule.
For eg. in the case mentioned above, for a principal amount of Rs.1,00,000 with interest rate and repayment tenure being 7% and 5 years respectively, the EMI amount based on the formula is Rs. 26,688 per year or Rs. 2,224 per month. This EMI amount over time results in a reduced principal and interest amount being paid every year until the loan is fully repaid. The table below illustrates the amortization schedule of this loan in detail.
Factors Affecting Gold Loan Interest Rates
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 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 is 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 is 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.
- • Valuation and Benchmarking Methods Used By Lenders
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 of a loan at lower interest rates. Having a credit score of above 700 (CIBIL or Experian) is therefore recommended.