A fast-emerging trend in securing quick financial fixes is availing of a gold loan. Gold — which you’d generally find sitting inside bank lockers — is being pulled out and used for its advantage of its lucre. Interestingly, information available on gold loans is vague, leaving you a little muddled up about the detailed process on gold loan sanction. So, where do you begin?
The first step is to figure out your gold loan eligibility. Many banks and Non Banking Finance Companies (NBFCs) that offer gold loans have online calculators for this, but then the question really is, how to get max principal amount on gold loan? Here’s a quick, 3 step guide to know all about your loan eligibility:
1. Understanding The Per Gram Rate and the LTV
It is important to know the value of gold per gram, which is the current rate of 22 Carat gold in the market on the day of availing the loan, to know your loan eligibility. Once you’re armed with this information, the gold loan rate per gram is based on something called the LTV or loan to value ratio.
The simplest way to define the LTV is that it is the maximum loan amount that can be availed, basis the underlying value of the gold. Simply put, the LTV determines whether you’re going to get Rs. 10,000 or Rs. 5 lakh on the value of the gold. The standard maximum LTV that can be availed on gold is set by the Reserve Bank of India at 75%. This means that based on the value of your gold and the per gram rate, you could get a loan of up to 75% of the value of your gold.
To understand the amount you can get based on the value of your gold, therefore, knowing the per gram rate and the LTV ratio is crucial.
2. The Formula That Rules Them All (Or How To Calculate Gold Loan)
The gold loan rate per gram is calculated by multiplying the net weight of gold with the per gram rate in the market and the purity factor of the gold. Net weight itself is calculated as the total weight of jewellery minus the weight of any other element aside from gold in it, i.e., the net weight calculated on a diamond ring is the total weight of the ring minus the weight of the diamond. Once this is calculated, the formula goes so:
Gold Loan Amount = Net Weight x Per Gram Rate x Purity
Once the gold loan per gram is arrived upon; the amount that can be loaned is decided based on LTV. Different banks and NBFCs offer different LTV ratios on gold. The key is to choose the bank or NBFC well to get the gold loan per gram, for maximum gains.
3. How To Make An Informed Decision: Banks or NBFCs
So, what sets different banks and NBFCs apart in terms of their gold loan offerings? The thing to remember is, that the decision regarding getting a gold loan at highest rate per gram isn’t just limited to the LTV on offer by different banks and NBFCs. Nor is it based on the simple question of how is gold loan calculated.
The maximum lucre on your gold loan is in fact, determined based on the LTV in comparison to the interest rate. A high LTV means little if at the time of returning the loan, you’re being forced to pay an exorbitant interest rate, right?
Ideally, to avail the most advantageous gold loan per gram today, along with LTV, a bank or NBFC’s interest rate should be considered as well. It’s best to look at higher LTV and lower interest rates in comparison for the best tradeoff in availing gold loans.
Enter Rupeek: for high lucre and getting the most value at the lowest interest rates, Rupeek’s offer is over 25% cheaper as an option for availing a gold loan. Especially in comparison to what the gold loan per gram is today in Bangalore, Rupeek checks all the boxes, by offering the highest per gram rate for the the day thus allowing for higher profitability. What’s more, Rupeek charges a fixed (non-jumping) rate of interest on your gold loan over a period of time unlike other companies which have a jumping interest rate. Clearly, this is a steal for any self-employed businessman with a business acumen, as it gives way to maximum value at minimum interest.
Knowing these basic terminologies and understanding what works and what doesn’t while considering going for a gold loan is a great first step towards understanding the detailed process on gold loan sanctions. Further, it’s just good sense to know all of this to reduce ambiguity in gold loan sanctions and avoid being cheated or tricked or undersold for the value of an asset you may posses.
However, if you’re still looking for help with calculating your gold loan eligibility, Rupeek has a very handy online Gold loan eligibility calculator to help!
And with that, we can wrap up Gold Loan Eligibility 101. With all this information in mind, you can ensure that the next gold loan you apply for works to the best of your interest.