How To Calculate Gold Loan Interest? [Quick Guide]

Gold loan is a type of secured loan, which is offered by many banks and NBFCs. It is offered against the applicant’s self-owned gold that is kept as a security or collateral for a certain time with the lender. Usually, the loan is disbursed on the same day. So, the gold loan is considered the quickest way of getting ready funds for your immediate requirements.

Financial institutions keep the applicant’s self-owned gold ornaments, coins, or jewellery as security or collateral to offer gold loans that are returned to the owner once all the dues and loan amount is repaid. Usually, the loan offered against gold is for a short-term to medium duration. There are several EMI calculators available on various online portals where you can calculate the interest to be paid monthly and plan your gold loan accordingly. They will help you understand how to calculate gold loan interest.

Why Opt for a Gold Loan?

A gold loan is considered an easy option to fulfil immediate financial requirements. You should opt for a gold loan because:

1. The interest rate is lower as compared to other unsecured credit options, such as business loans, personal loans, and MSME loans.
2. The amount of loan can be used for several purposes, and so, it is beneficial to the user compared to other loans with restricted uses.
3. No credit score or proof of income is required when the loan application is reviewed. So, even if you don’t have any fixed income, you can manage to get this loan.
4. The repayment tenure is flexible, varying from some days to several months.
5. Many financial institutions don’t charge anything for prepayment on a gold loan.
6. Documentation is less as compared to other loans, with a hassle-free process.
7. Loan disbursal is instant. The processing of the loan is fast and the loan amount is available to be used in just a few hours, with minimal documentation requirements.

Requirement for Gold Loan

The loan amount that will be sanctioned for you depends on your gold’s purity and the current gold price. If the purity value is high, the loan amount will also be higher. Many banks employ gold valuers at their offices for proper valuation in front of applicants and give the estimate in writing.

Eligibility: Any Indian who has self-owned gold and is aged between a minimum of 18 years and a maximum of 70 years can apply for a gold loan at major banks in India.

Rate of Interest: Most NBFCs (Non-Banking Financial Companies) and banks in India offer gold loans with affordable EMIs and flexible options of repayment, with competitive rates.

Documents: Apart from knowing how to calculate the gold loan interest, one must also be ready with these documents for loan application:

1. Two recent passport-sized photographs are to be attached to the duly filled application form
2. Applicant’s KYC documents: Aadhaar card, passport, PAN card, driving license, voter ID card, utility bills (electricity and water bills)
3. Proof of the gold ornaments, jewellery, or coins presented for loan
4. Bank statement of the last 12 months
5. Any other document asked by the lender as per rule

How to Calculate Gold Loan Interest?

Using the EMI calculator, you can easily calculate the amount of EMIs that you need to pay if you opt for a loan from any bank or financial institution. Before calculating the interest, you must know that the amount of loan offered is only 75% of the gold value provided for the loan as security.

The EMI can be calculated using the following steps:

Step 1. Log on to the website that offers an EMI calculator for gold loans. Several online portals offer this service.

Step 2. You will need to enter the values in the given boxes i.e., the loan amount, rate of interest, and tenure.

The formula that is used by the EMI calculator is –

E = P x r x (1+r) n / [(1+r) n-1)]

Where E = Equal monthly instalments

P = Principal amount

r = Rate of interest

and n = Tenure (in months)

After you enter all these details, the EMI calculator will automatically calculate and display the EMI amount on the right-hand side of the screen. You can also enter different loan amounts and interests and decide the one that suits you.

Whether you calculate the gold loan by the formula or by using an online EMI calculator, the result is going to help you in planning your future funds. Gold loan is one of the quickest methods of getting funds using your resources. It has a hassle-free process, with a low processing fee and less interest rates. So, it’s important to know how to calculate the gold loan interest. The bank is also taking the responsibility of keeping your valuables safe till you repay the loan. Once you repay it, you will get your gold back.

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FAQs

Q. How to calculate the interest amount on a gold loan?

Ans. To calculate the interest amount on the loan, one can select any online portal offering an EMI calculator tool. Visit the portal and enter the details such as loan amount, rate of interest, and tenure for repayment of the loan. The value of EMI will be displayed instantly.

Q. How is the EMI calculated in a loan calculator?

Ans. The EMI amount is calculated in the calculator using this mathematical formula:

E = P x r x (1+r) n / [(1+r) n-1)]

Where E = Equal monthly instalments

P = Principal amount

r = Rate of Interest

and n = Tenure (in months)

Q. Is a gold loan a suitable and safe option for fund requirements?

Ans. Yes, a gold loan is a good option for getting quick money against your sources. The gold is safely kept in the bank till the end of the tenure and then returned to you once you repay the full amount to the bank.

Q. Will the gold loan increase my credit score?

Ans. Yes, the goal loan is like any other loan. If the instalments are paid on time, it will surely have a positive impact on your credit score. If early payments are made, it will increase your credit score.

Q. How much loan can I expect to get on my gold?

Ans. The gold loan amount depends upon the purity of your gold and the current price of gold. The sanctioned amount is only 75% of the gold value. This way, you can decide on how much loan you can expect from your available gold.