How EMI Works in Gold Loans: A Beginner’s Guide

An EMI (Equated Monthly Installment) is the fixed amount you pay every month to repay a loan. Each EMI payment includes part of the interest and part of the principal. Over the loan tenure, the outstanding principal goes down until the loan is fully paid. Gold loans work similarly to other loans in that you can repay them via EMIs. (Some lenders also allow paying only interest monthly and principal later, but standard EMI plans are common.)

Breaking Down the EMI Formula

Calculating your EMI involves four things:

• Loan Amount (Principal, P): This is how much you borrow. In a gold loan, P is based on your gold’s weight and purity. For example, if you pledge 100g of 22K gold and the lender values each gram at ₹5,000 with a 75% loan-to-value, then P = 100 × ₹3,750 = ₹3,75,000 .
• Interest Rate (annual, r%): The lender’s annual rate (divided by 12 for monthly). Suppose the annual rate is 12%, then the monthly rate is 1% (0.01 in decimal).
• Loan Tenure (n months): Number of months over which you will repay. Longer tenure lowers each EMI but increases total interest paid.
• EMI Formula:
  EMI = P × R × (1 + R)ⁿ / [(1 + R)ⁿ − 1]
  where R = monthly interest rate, n = total number of monthly payments.

For example, if P = ₹1,00,000, R = 1% (0.01), and n = 12 (1 year), then EMI ≈ ₹8,885 per month. This includes interest and principal. Over 12 months, you’d repay ₹1,06,620 total (₹6,620 as interest).

Step-by-Step EMI Calculation

Here’s how to estimate your gold loan EMI step by step:

• Determine Loan (P): Weigh your gold and check current price per gram for its purity. Multiply weight × price × LTV%. (E.g., 10g of 24K gold at ₹5,000/g, 75% LTV → P = 10 × 5000 × 0.75 = ₹37,500.)
• Decide Interest Rate: Find out the annual interest rate the lender offers (say 11–13% p.a. for gold loans). Convert to monthly by dividing by 12 (e.g., 12% becomes 1% per month).
• Choose Tenure: How many months do you want? Gold loans often have tenures from 6 months to 3 years. Longer tenure means smaller EMI but more interest overall.
• Plug into Formula: Use the EMI formula (above). You can use an online EMI calculator or do a quick calculation. For small loans, even a manual calculation or bank-provided calculator suffices.

Example Calculation: Suppose you borrow ₹50,000 against your gold at 12% p.a. for 18 months. Monthly rate R = 1% (0.01), n = 18. Using the EMI formula:

This means every month you pay around ₹2,967. In the first month, interest portion = ₹50,000×1% = ₹500 and principal portion = ₹2,467. Each month the interest part decreases and the principal part increases slightly, until the loan is cleared. Over 18 months you would pay about ₹53,406 total (₹3,406 as interest).

Things to Remember About Gold Loan EMIs

• Interest-Only vs EMI: Some gold loans allow paying only interest during the tenure and principal at end. But most customers prefer standard EMI plans to gradually reduce the loan. Check with the lender what options you have.
• No Penalty for Early Payoff: Many lenders allow you to pay off early. If you do, you save on interest. Kandhavillas, for example, lets you prepay without extra charges.
• Partial Payments: If you have extra cash mid-tenure, making part-payments can shorten your tenure or reduce your EMI. Ask your lender how they apply part-payments.
• Keep Track: Use the formula or a loan amortization table to see how payments split. Online calculators (like Bajaj or Axis Bank’s EMI calculators) can help plan your budget.

In summary, an EMI in a gold loan is just a monthly mix of interest and principal, calculated like any other loan. By understanding the formula and doing a quick example, you can know exactly what your monthly payment will be. Kandhavillas Fincorp’s gold loans come with transparent EMI calculations and can even offer flexible options (like choosing a slightly longer tenure to lower your EMI). With clear terms and no hidden fees, Kandhavillas makes repaying easy and predictable for borrowers.