How to Calculate Gold Loan Interest (with Worked Examples)
Most girvi interest is quoted per month, so the arithmetic is straightforward once you fix three things: the principal, the monthly rate, and the number of months elapsed. This guide walks through the calculation with clear examples.
The basic monthly interest formula
Simple monthly interest is the principal multiplied by the monthly rate multiplied by the number of months elapsed. If a customer borrows one lakh rupees at two percent per month and repays after exactly three months, the interest is one lakh times 0.02 times three, which is six thousand rupees.
A common market convention counts part-months as whole months, so a loan that is 45 days old is treated as two months for interest purposes. Decide your convention up front and apply it consistently to every customer.
- Principal: the amount lent.
- Monthly rate: the agreed percentage per month, as a decimal.
- Months elapsed: whole months, rounding up part-months if that is your convention.
Worked example with a part-payment
Suppose a customer borrows fifty thousand rupees at 1.5 percent per month. After two months they pay ten thousand rupees. The two months of interest is fifty thousand times 0.015 times two, which is one thousand five hundred rupees. The payment first clears that interest, and the remainder reduces the principal.
Tracking this by hand across dozens of customers is where errors and disputes creep in. A ledger that applies your chosen convention automatically keeps every balance defensible.
Early settlement and closing a loan
When a customer settles, the amount due is the principal plus the interest accrued to that day under your convention, minus anything already paid. A clean closing figure, shown the same way every time, builds trust with customers.
Frequently asked questions
Is gold loan interest simple or compound?
Traditional girvi almost always uses simple monthly interest on the principal. Compounding is uncommon in the neighbourhood gold-loan trade.
How are part-months counted?
Many goldsmiths round a part-month up to a full month. The key is to pick one convention and apply it consistently so customers are treated the same way.
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