What are the interest rates and charges associated with gold loans?

What are the interest rates and charges associated with gold loans?

Gold loans have become popular among people because of the accessibility of instant funds in India. There are many non-banking financial companies and fintech lenders like Manipal Fintech that provide competitive interest rates and minimal documentation. However, when we talk about the interest rate, other charges are not known to many people. Therefore, we talk about the charges that you should be aware of before taking any gold loans.

What are Interest Rates?

An interest rate is equal to the percentage of the principal amount. This means a lender will charge a small amount over a specified period. If we break a little more, the borrower needs to pay an extra amount called interest. Let's take an example: if you take a loan of ₹1,00,000 at a 10% interest rate, then you need to pay ₹ 10,000 as interest for one year.

Types of Interest Rate

As we discussed interest rates in the above paragraph, there is a lot more to learn about them. There are many types of interest rates, such as fixed interest rates and floating(variable) interest rates. Let's discuss fixed interest rates. If you are seeking a gold loan, the interest rate would come into the picture. But in the case of a fixed interest rate, your percentage of interest rate percentage remains the same throughout the loan tenure. It provides stability in monthly payments and helps you to plan your monthly EMIs. On the other hand, the floating interest rate may change over the tenure. It might decrease or increase during the loan.

There are other types of interest rates called hybrid interest rates. In this borrowing needs to pay a fixed interest rate over a certain period, and after that, it will shift to floating interest rates.

Other Charges Associated With Gold Loan

As we have discussed the interest rate in the gold loan, there are other charges as well that borrowers should know before taking a gold loan. The additional fees may vary among lenders and may impact the total repayment amount. Let's explore what these other charges are that are associated with gold loans.

1. Processing Fees

In most cases, lenders charge processing fees that range from 0.5% to 2% of the total amount. For example, if you have applied for a gold loan of ₹2,00,000, then you need to pay ₹2,000 at 1% of a processing fee at the time of disbursal.

However, you don't need to worry about it. Some lenders provide zero processing fee offers. You can grab this advantage by saving some extra money in your pockets.

2. Appraisal Charges

You must be thinking about what appraisal charges are. Well, I will explain to you further. When you provide a loan to lenders to check the purity and weight of your gold, you pledge. This process is known as gold appraisal, which comes with some charges. The amount is extremely small to get the gold evaluated.

Always ask lenders and discuss the amount with lenders before the processing of gold.

3. Foreclosure or Prepayment Charges

Well, if you want to close your gold loan earlier than the decided tenure, lenders charge a penalty, and they charge some amount on it. There are some lenders that offer zero foreclosure charges for some time period. We suggest you always read the pre-payment charges.

4. Late Payment Penalty

Before applying for a gold loan, you should be aware of what happens if you pay late EMIs. This typically causes a late payment penalty that adds a late fee amount that you need to pay with EMI. Let's take an example, if you are paying ₹5,000 EMI, which causes you a penalty of 3% that means you need to pay ₹150 for every month the payment is delayed. Not only will it affect your CIBIL score, which would reduce the chances of loan approval in the future.

Conclusion

We suggest that before going for a gold loan, it is essential to read every line of the documents. This provides a detailed fee breakdown that includes interest rates, processing fees, appraisal fees, and foreclosure penalties. Always choose your lender wisely who offers transparent pricing that helps you to plan your finances in the future. Additionally, consider repayment capacity to choose the perfect tenure according to your loan amount. In short, the gold loan can be a smart and quick financial solution to fulfill your financial needs.