Financial institutions can now lend up to 75% of the value of gold ornaments, as per the Reserve Bank of India’s announcement. This high LTV (loan-to-value) ratio is targeted to improve the borrowing capacity of individuals to mitigate their financial exigencies that can throw anyone off guard. The high permissible loan-to-value ratio for loans against gold ornaments is to further aid entrepreneurs and households severely impacted during the COVID-19 pandemic.
By pledging the right gold ornaments, individuals can secure a significant loan amount without going through the hassle of selling them. By pledging gold ornaments of the highest purity, i.e., 22 karats, one can avail maximum funds to deal with financial emergencies.
What is a Gold Loan?
A loan against gold ornaments or jewellery loan is a secured credit option that borrowers can avail by pledging gold ornaments ranging from 18K to 24K as collateral. The sanctioned loan amount is a percentage of the pledged gold’s present market value.
Availing this type of secured loan is one of the easiest and quickest ways to acquire funds during emergencies. Owing to the growing popularity of this form of credit, many lenders are now offering gold loans at an attractive rate of interest. Alongside, while you are at it, remember to know about gold loan renewal processes.
How to Determine Maximum Gold Loan Value?
India’s annual demand for gold over decades has only increased drastically; this trend doesn’t seem to end anytime soon.
Several factors are taken into consideration when deciding the sanctioned loan amount in lieu of gold ornaments. Lenders evaluate the pledged gold’s weight and purity; based on these factors, current market value is determined.
As already stated, lenders approve a maximum of 75% of the pledged gold’s market value. For instance, if you are pledging gold ornaments worth Rs. 4 lakh, the sanctioned loan amount you will receive will not exceed Rs. 3 lakh. Besides, the granted LTV ratio will also depend on the loan tenure, the form of gold, and the borrower’s repayment capacity.
The above discussion must have helped establish an idea of the factors lenders consider when deciding gold loan value. Now, let’s discuss them one at a time:
● Loan-to-value ratio
A loan-to-value ratio basically is an assessment of lending risk conducted by lenders before approving any secured loan. It is the percentage of the collateralized asset’s value that a financial institution can lend to a borrower. Since the LTV ratio for gold loans is capped at 75% by RBI, for collaterals worth Rs.100, a lending institution can only provide Rs.75 at max.
When the market price of gold falls, customers will have to pledge more gold. In this regard, individuals can use an online gold loan calculator to evaluate the loan amount beforehand.
Therefore, it is important to know about the different online loan options and how to avail the most suitable one.
● Purity of gold
The purity of gold ornaments provided as collateral significantly impacts the granted loan amount. The quality of gold ornaments is measured in karat (K), ranging from 18K to 22K. The presence of alloys, such as copper, cadmium, zinc, and silver, in 22K gold makes it resistant to damages.
The weight of jewellery pledged with 18 karat gold will be different from the weight of ornaments pledged with 22K gold. Basically, individuals pledging 22K gold ornaments will receive higher funds than the ones pledging 18K jewellery (considering that the weight is identical).
● Weight of gold
A crucial aspect that lenders consider while sanctioning a loan is the weight of the gold. In the case of precious stones studded gold ornaments, only the purity and the weight of the gold will be the determining factors. The value of precious gems will not be taken into account.
To estimate the exact value of the gold, any stone or attachments in the jewellery is removed. Individuals can secure more funds by pledging ornaments with higher gold weightage. Nevertheless, one has to pledge a minimum of 10 grams of gold as collateral to avail a gold loan.
● Form of gold
Since ornaments have sentimental values attached, the repayment is quicker. However, when pledging gold for funds, one must remember that lenders do not accept gold bars or gold bullion as collateral.
● Studded jewellery
As mentioned above, only the weight and purity of gold determine the loan amount. Diamonds, precious stones or gems studded in the jewellery are not taken into consideration when weighing the ornament. If present, they are removed before taking the final measurement.
● Current per gram rate of gold
The market rate of gold keeps fluctuating on a daily basis since it is dependent on several external factors. As per guidelines set by RBI, lenders are required to take the average of the gold rate per gram of the last 30 days for determining the gold valuation.
For instance, if the average market rate per gram of gold of the past 30 days is Rs. 4,200, then the per gram rate of a 22K gold ornament will be Rs. 3,850, i.e., Rs. 4,200 x 22 = Rs. 92,400/24
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Other Factors that Affect Your Gold Loan
Here are some other factors that impact gold loan value:
● Eligibility
Besides the factors mentioned above, there are other parameters that determine the sanctioned gold loan amount. Meeting the lender-specific eligibility criteria is important to qualify for a gold loan at an affordable interest rate. However, these parameters are easy to meet. To avail a loan against gold ornaments, borrowers only need to fulfill the following criteria:
- Age should be above 18 years.
- Applicants should have an adequate amount of gold.
Simple enough!
This makes a gold loan an ideal funding solution for customers in dire need of money but cannot fulfill the stringent eligibility criteria associated with other types of loans.
● Interest rates
The applicable rate of interest is also crucial. As the gold loan interest rate is determined based on a creditor’s risk assessment, it may vary from lender to lender. Besides, the loan tenure and loan amount also plays a key role in deciding the applicable gold loan interest rate. For a higher LTV ratio, the risk involved for lenders is higher too. In such cases, lenders may levy a higher rate of interest.
However, reputed gold loan creditors provide these funds against fixed interest rates, significantly lower than the applicable rate of interest on other forms of credit. Prominent lending institutions, such as Rupeek, offer low-interest rates on gold loans. Potential borrowers must conduct a proper market study before zeroing on a lender.
● Additional charges
In most cases, reputed lenders do not charge any amount for making gold loan prepayment. However, some may charge up to 2.25% of the remaining loan amount in cases of loan foreclosure.
What Are the Benefits of a Gold Loan?
Here are 5 ways in which you can utilize your gold loans:
● Financing medical emergencies
● Funding higher education
● Meeting home remodeling expenses
● Expanding a business
● Purchasing appliances and gadgets
Gold loans require minimal paperwork, and a borrower’s credit score also plays no role when sanctioning the loan amount.
If you have idle gold ornaments in your locker, just opt for a gold loan. If the safety of your pledged asset is holding you back from applying for a gold loan, there is no need to worry. Trusted gold loan providers ensure complete safety when handling your assets. Therefore, in trying times, pledge your gold jewellery to avail funds at the earliest. Due to the lack of end-use restrictions, borrowers can utilize the funds to pay all types of expenses.
Do you require funds urgently? Apply for a gold loan via Rupeek to fulfill your financial requirements with ease!
