Seeking a loan with low credit score? Gold loan might be the answer

Loan against gold: Are you urgently seeking funds without the inconvenience of strict credit evaluations? Gold loans, backed by the collateral of gold, offer borrowers a myriad of benefits, including lower interest rates and simplified documentation processes, say experts.

Gold loan interest rates in India typically range from a modest 8.00 per cent per annum to 26 per cent per annum, making them a cost-effective borrowing option for many, according to BankBazaar. Banks and financial institutions across the country provide gold loans, with loan amounts varying from as little as Rs 1500 to a substantial Rs 1.5 crore.

Exploring gold loan interest rates

In 2024, a comparison of gold loan interest rates across various banks in India unveils diverse borrowing options. Axis Bank offers gold loans starting at 17 per cent per annum, catering to loan amounts ranging from Rs 25,001 to Rs 25 lakh, according to Bankbazaar data. Meanwhile, HDFC's gold loan interest rates fluctuate between 8.50 per cent per annum to 17.45 per cent per annum, with loan amounts starting from Rs 25,000 onwards. 

Canara Bank provides a fixed rate of 9.60 per cent per annum for gold loans ranging from Rs 5,000 to Rs 35 lakh. Muthoot Finance extends gold loans with interest rates ranging from 10.5 per cent per annum to 22 per cent per annum, starting from Rs 1,500 onwards. State Bank of India (SBI) offers gold loans with interest rates varying from 8.75 per cent per annum to 9.60 per cent per annum, catering to loan amounts ranging from Rs 20,000 to Rs 50 lakh. 

Kotak Mahindra Bank presents a wide range of interest rates from 8.00 per cent per annum to 24.00 per cent per annum, with loan amounts extending from Rs 20,000 to Rs 1.5 crore. IndusInd Bank provides gold loans with interest rates ranging from 10 per cent to 16.00 per cent per annum, accommodating loan amounts up to Rs 20 lakh. 

Manappuram Finance offers gold loans with interest rates between 10.90 per cent per annum to 26.00 per cent per annum, tailored as per the requirements of the scheme. Bank of Maharashtra, Punjab National Bank (PNB), and Bank of Baroda extend gold loans with fixed interest rates of 9.30 per cent per annum, 9.25 per cent per annum, and 9.40 per cent per annum respectively, catering to varying loan amounts.

BankBazaar has compiled the list of banks offering gold loans, along with their respective interest rates, taking into account a repayment tenure of six months and the purity of gold at 22 karats.

Why does gold loan glitter?

The attractiveness of gold loans extends beyond just the interest rates. Borrowers are drawn to these loans for several reasons:

• Low interest rates: By providing gold as collateral, borrowers can access funds at comparatively lower interest rates than other forms of borrowing.
• Flexible usage: Unlike specialised loans for cars or homes, gold loan funds can be utilised for a variety of purposes, including education expenses, weddings, or medical emergencies.
• Minimal documentation: The documentation process for gold loans is streamlined, typically requiring only address and identity proof.
• Accessible to all: Individuals with less-than-perfect credit histories can still avail gold loans, as the collateral mitigates the risk for lenders.

Factors influencing interest rates

The fluctuation of gold loan interest rates is influenced by several key factors. Firstly, the prevailing market value of gold plays a major role, directly impacting loan interest rates. Generally, higher gold prices tend to correlate with lower interest rates, as the value of the collateral increases, reducing the lender's risk. 

Additionally, inflationary conditions can drive up the price of gold, as investors seek it out as a hedge against inflation. This increased demand for gold can lead to lower interest rates on gold loans, further incentivising borrowers. 

Moreover, the strength of the customer's relationship with banks and financial institutions is crucial. Existing customers often have the advantage of negotiating better interest rates, stressing the importance of boosting strong banking relationships. Overall, the interplay of these factors influences gold loan interest rates.