All-Inclusive Information On Gold Valuation For Gold Loans

The value of gold is calculated on the basis of its purity & the current market rate of the precious metal. Know the factors used to calculate the gold loan value here!

31 Oct,2022 11:41 IST 12 views
All-Inclusive Information On Gold Valuation For Gold Loans

Gold is known for its global market opulence as the ‘yellow glittery metal’ that adorns the body of the rich and the elites. But this is just one shade of the golden metal’s vivid diversity. Moreover, gold is a haven, making it a potential investment resource. Financial institutions bank upon this attribute of the precious metal to issue gold loans.

To acquire a gold loan, you must pledge your gold assets with the banks or NBFCs as collateral to secure funds. Per the Reserve Bank of India guidelines, financial institutions can issue 75% to 90% of the gold’s worth as the loan amount to borrowers.

But what factors influence gold loan value during gold loan procedures?

Factors Influencing Gold Loan Value Calculation

In the case of gold loan valuation, lenders heavily focus on the purity of the gold and the prevailing market gold prices. The higher the purity level of the collateralised gold, the greater will be the loan amount permissible against it. However, the key factors directly affecting gold loan valuation are as follows.

• The Current Value Of Gold

Gold prices fluctuate daily due to their reliance on numerous external factors. According to the RBI's regulations, lenders must consider the average per gram gold rates of the past 30 days to evaluate the borrowers’ gold assets.

For example, let’s assume the average rate per gram of gold in the last 30 days is INR 4000. Then, in the case of 22k purity, the per-gram value of gold will be INR 3,667 (approx). The calculation is as follows:

Average of the per gram gold rate of the past 30 days= INR 4000
Gold quality= 22K
Per gram value of gold= 4000*22= 88,000/24= INR 3666.666

• Gold Karats

When buying gold, the first thing you consider is its karat value as it is the standard unit for measuring gold quality. 24K gold is the highest measure of gold purity. However, to increase the damage resistance power of gold, makers mix gold with other metals, such as silver, copper, cadmium, zinc, etc., to create alloys. Typically, gold jewellery contains 18k to 22k gold content.

The purity of the collateralised gold significantly impacts the gold loan amount. Financial institutions agree to sanction higher loan amounts for high-carat gold assets. For instance, Ashmita has 22K gold assets for collateral, while Barkha has 18K gold assets. Financial institutions will provide a higher amount to Ashmita when sanctioning a gold loan.

• Loan-to-Value Ratio

LTV ratio plays a significant role in the valuation of gold for gold loans. It is the mandatory ratio adopted and followed by all financial lenders. The ratio shows the eligible loan amount based on the value of the assets pledged. The Reserve Bank of India allows financial institutions to issue 75% to 90% of the gold value to the borrower in the case of gold loans. Therefore, a lender with a higher LTV ratio can quickly secure a hefty loan amount from them at competitive interest rates.

• Collateral's Weight

One of the most crucial factors in determining the gold value for gold loans is the weight of the pledged assets. When determining the gold weight, lenders do not consider the weight of stones, gems, or any other attachment included in the pledged assets.

Gold bars and coins have a higher value in the gold loan market because they are plain gold assets and do not contain any other stones or gems. The loan amount increases with the amount of gold in the collateral. A minimum of 10 grams of gold must be present in the asset to qualify as collateral for gold loans.

Apply For A Gold Loan With IIFL Finance

Gold loans are one of the most trusted lending options. They help you face unplanned financial crunches. If you are willing to use your gold assets by taking a gold loan, IIFL Finance can be your best companion. The platform offers low-interest loans with flexible repayment schemes. In addition, IIFL Finance stores your pledged assets in specialised lockers and provides insurance coverage to their clients.

FAQs

Q1. What are the fee charges applicable on gold loans?
Ans. The fee charges associated with gold loans are
• Processing charges
• Charges for late payments
• Fine for missing interest payments
• Valuation fees

Q2. What are the main repayment offerings available for gold loans?
Ans. You can choose the following ways to repay a gold loan:
• Pay in Equated Monthly Installments (EMI)
• Pay interest at the start and the principal amount at the end of the loan period.
• Monthly interest payment and principal payment at the end of the loan period.

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