Gold Loan Interest Rates in Rural vs. Urban Areas: A Comprehensive Guide

The need for accessible credit and India's cultural affinity towards gold has resulted in India's gold loan market experiencing impressive growth. Gold has historically been associated with wealth and financial security. In addition to the above, NBFCs or Non-Banking Financial Companies have surfaced, lending against gold as collateral and offering benefits such as:

• Easy access to gold loans
• Quick disbursement of gold loan
• Competitive gold loan interest rates

Table of Content:

• Variable Gold Loan Interest Rates Across Cities and between Rural and Urban Centres
• Conclusion

With further economic growth and the government's efforts towards increased financial inclusion, gold loan providers will be instrumental in meeting the credit demands of both people and businesses. The most important factor to consider while taking a gold loan is of course the interest rate which can vary based on multiple factors. These factors are:

• The price of the gold
• The purity of the gold
• Loan tenure, the shorter the tenure, the higher the interest rate
• The loan amount sought (can be up to 75% of the value)
• RBI's repo rate

Variable Gold Loan Interest Rates Across Cities and between Rural and Urban Centres

Different lenders such as banks or NBFCs may have different gold loan interest rates in urban and rural centres. This is determined by local demand and supply which in turn are influenced by regional preferences and economic conditions.

Higher demand will lead to higher interest rates in cities. For instance, in cities of Southern India, the quality of traditional local craftsmanship increases demand and hence the price of gold. This in turn results in a decrease in gold loan interest rates in those cities.

Major Determinants

The purity of gold is a huge determinant of its value and the interest rate of the loan given against it. The affluence of the gold buyers in cities like Mumbai and Delhi leads to higher demand for purer gold which in turn brings down the interest rates on gold loan in these cities.

Another determinant of gold loan interest rates in different cities is the local jewellery associations which play an important part in setting gold prices within the specific city they inhabit. The purity of gold, the market conditions, and the local demand are factors influencing their decisions.

Now coming to the rural areas, agricultural gold loans are playing a pivotal role in the empowerment and in the uplifting of the rural population. India is largely an agrarian economy and a significant portion of the country's population relies on farming and related activities to earn their livelihood. An example of such an association is the All India Jewellers and Goldsmiths Federation.

The agricultural sector's contribution to the GDP is approximately 14%. From the Pradhan Mantri Kisan Samman Nidhi to the Pradhan Mantri Kisan Maan Dhan Yojana, farmers in India are beneficiaries of several different government schemes. The former for instance, transfers Rs 6000 annually via Direct Benefit Transfer to landholding farmers.

Since, the centre and state are both extending credit to farmers through various schemes, banks and financial institutions like Muthoot Finance, have also started giving out gold loans to them for agricultural activities. Agricultural gold loans work exactly the same as ordinary gold loans; they are loans given against gold at competitive gold loan interest rates. These loans can be taken for any farming activity, such as purchasing:

• Seeds
• Fertilizers
• Machinery
• Tools
• Covering other operational costs

There are many good reasons to get an agricultural gold loan from an experienced and trustworthy institution like Muthoot Finance:

• The interest rates are low: agricultural gold interest rates are lower than those of other loan products.
• Minimal paperwork involved in processing and approval: farmers access the funds easily without enduring long waiting periods.
• Flexible repayment options such as staggered payments over extended periods, exist, allowing farmers to repay the loan on a more manageable timeline.
• Muthoot Finance's application process for agricultural gold loans is quite expedient. Only the following submissions are required: -
• Proof of identity
• Proof of address
• Information regarding gold holdings
• Getting a gold loan essentially eliminates the need to sell one's gold in order to get the required money. Muthoot Finance secures your loan against the gold placed in their hands.

Conclusion

The fundamental difference between urban and rural gold loan interest rates lies in the different product offerings in either setting, the target borrower, and the factors influencing the interest rates.

Muthoot Finance is a market leader when it comes to gold loans. It has served over 70 crore customers to date (2.5 lakh customers daily). Visit your nearest Muthoot Finance branch to learn more about the latest gold loan schemes on offer.