Gold Loan Rate Per Gram As Per Gold Purity

A gold loan is a type of secured debt in which the borrower pledges gold jewellery as a security in exchange for some quick loan. The gold jewellery is given back to the borrower once the money has been repaid.

The value of the gold jewellery determines the loan amount that will be disbursed. An expert appointed by the lender does the valuation, taking into account the jewellery's weight and purity of the yellow metal. Since there is no established pricing system or benchmark for other precious stones, the valuer does not take their weight into account.

Lenders use gold loan per gram or gold loan rate per gram to calculate and represent the loan amount one can get for every gram of pledged gold.

The Reserve Bank of India has established guidelines for gold lending. The maximum permitted loan-to-value or LTV ratio for gold loan is set at 75% by the RBI. This means a lender can give loan up to 75% of the value of gold, not more than that.

The lender rates the jewellery based on the current market price of gold and offers the highest amount that can be obtained after allowing for a buffer.

The lender then customises the loan's interest rate based on the borrower's loan amount and the duration of repayment. The lender also discloses any additional costs and fees related to processing, administering, and, ultimately, closing or repaying the loan, which results in the return of the gold jewellery.

Valuation Of Gold For Loan

To decide on the value of the loan against gold, the lender examines the gold jewellery to confirm the purity of the asset. The evaluation made by the professionals at the NBFC or bank will have a direct impact on the gold loan per gram rate. The lender broadly looks at the following points to determine the loan value:

Karat

Gold purity is indicated by the karat scale and any financier who offers a gold loan will first examine the gold's purity and quality before processing the loan. Based on the evaluation, the gold loan per gram for loans would be determined. Gold ornaments are typically between 18 and 22 Karat in purity, wherein a loan secured by 22 Karat gold will be worth more than one secured by 18 Karat gold.

Loan To Value Rate (LTV)

The loan-to-value rate or LTV ratio is the maximum allowed gold loan per gram rate, which will be applied at the present market price of gold, for approving the loan amount. The present LTV ratio for gold loans is 75%. Therefore a lender sanction up to 75% of the value of the secured gold, depending on its internal policies that will also have a bearing on the amount of the loan.

Rate Of Gold

The value of the gold loan to be disbursed is based on the prevailing market price of gold. Therefore, sanctioned gold loan amount will be lower if the price of gold has declined. While one may get a better gold loan per gram rate in the unorganised market as against banks and non-banking finance companies, a person should be extremely careful before submitting precious asset. Apart from the interest rates being higher, there is also the possibility that one may get trapped in a scam and lose their gold.

Additional Embellishments

Gold Loan are offered against only the value of ‘gold’ in the jewellery after deducting the weight of any stones or other embellishments as they don’t have a standard value benchmark. So, even if one has a small diamond stud in the gold jewellery pledged, the lender does not take the value of that precious stone into account while processing the loan. The additional parts of the jewellery do not increase the gold loan per gram rate or the approved amount on the gold loan.

Conclusion

To take up a gold loan, there are many important considerations one must keep in mind including convenience, loan approval process, loan size, gold loan rate per gram, and other expenses that a lender may charge.

Compared with banks and other unregularised lenders, NBFCs provide gold loans at more competitive offering in terms of cost or interest rates, the quantity one may borrow, and ease of the process.

Among NBFCs, IIFL Finance provides the finest value proposition. It offers a digital gold loan, cheaper interest rates, and disburses the money in the shortest amount of time. For those who require small-ticket loans for a brief period, IIFL Finance also provides the smallest loan amount.