Predicting the Next Big Change in Gold Loan Interest Rates

The gold loan industry has seen an upward trajectory in recent times. According to Livemint, there has been an 11.64% increase in the search for gold loans in India in 2023. The strong demand in the market is attributed to several factors including easy availability of gold loans, potential gold value appreciation, affordable interest rates and more.

Table of Content:

• Gold Loan Interest Rates: The Current Market Condition
• Predictions about Gold Loan Interest Rates

India is known to be the biggest consumer of gold. Traditionally, Indians buy the yellow metal on auspicious occasions, and festivities. Gold ornaments and articles are passed on from one generation to another. Earlier, gold was kept in a bank locker or a safe place and would be worn on special occasions.

Though the tradition continues, there is a shift in consumer behaviour. Today, people utilise their gold items to get gold loans by keeping them as collateral. As gold loans have no end-use restriction, their popularity is gaining momentum in the Indian market. However, one of the biggest reasons why gold loan are popular is because of their competitive interest rates.

Gold Loan Interest Rates: The Current Market Condition

A gold loan is a secured loan that allows the borrowers to get a loan by keeping their gold items as collateral. As per the guidelines by the Reserve Bank of India, lenders can offer up to 75% loan amount on the total gold value. Different lenders have different interest rates. Usually, non-banking financial institutions (NBFCs) offer better interest rates and gold loan features to their customers.

The gold loan interest rate ranges between 7% to 18%. It depends on various factors such as type of lender, loan amount, borrower’s repayment capability, and more. According to Statista, NBFCs account for 61% market share in India. This means NBFCs are the flab bearers of the gold loan financing ecosystem. It is important to note that various external factors affect the gold loan interest rates.

Predictions about Gold Loan Interest Rates

Various factors affecting gold loan interest rate: -

Gold Prices on Interest Rates

The gold prices fluctuate due to several factors including currency exchange value, global economic trends, and inflation. When the gold prices change, it has a ripple effect on the gold loan interest rates. When the gold price per gram increases, it impacts the gold loan-to-value ratio. The lenders are willing to offer higher loan amounts on the gold articles when the gold prices go up.

This is because its value increases in the market and lenders are more confident to offer higher loan amounts at lower interest rates. The gold price prediction indicates a potential upward trend in the upcoming year.

Policy Changes

The Reserve Bank of India (RBI) regulates the financial lending market in India to mitigate risk. The repo rate charged by RBIs from banking and NBFCs directly impacts the gold loan interest rate. The lending rate of the gold loan increases when the RBI’s rep rate increases. In 2024, the RBI has increased the repo rate. It has reached 5.4% which has a cascading effect on the gold loan interest rate.

Inflation

Inflation and gold loan interest rates have an inverse relationship, which means during times of economic correction, gold is seen as a safer investment option. Historically, gold prices increase during economic downturns because it gives a hedge over inflation. When the gold prices increase, the gold loan interest rate is adjusted by the lenders.

The Future of Gold Loan Interest Rate

By factoring in the policy changes, gold price fluctuation, and other economic and geo-political variables, it is expected that borrowers may bag favourable interest rates from lenders. The rising gold prices allow borrowers to get higher loan amounts on their gold items.

However, some unfavourable factors exist such as the rising repo rate of RBI that can impact the gold loan affordability. Borrowers can mitigate this risk by opting for gold loans from a reputed gold loan provider that offers complete accuracy and transparency.

Muthoot Finance is a leading financial solution-providing company that offers some of the best gold loan schemes. The platform offers various features such as 7-layer security, free insurance of your gold, a pre-part payment facility, and minimal documentation. The loan@home facility allows borrowers to take gold loans from the comfort of their homes.