How To Get The Highest Value For Your Gold Pledge

In the world of finance, the allure of gold extends beyond its aesthetic appeal to its intrinsic value as a tangible asset. Pledged gold, a concept intricately woven into financial transactions, represents a dynamic interplay between security and liquidity. Individuals and businesses alike leverage their gold assets as collateral to unlock doors to financial opportunities. This practice, commonly observed in gold loans, not only safeguards lenders but also offers borrowers a viable avenue to secure funds, often with more favourable terms.

A loan against your gold ornaments, jewellery, or articles, is generally known as a secured loan. You can get upto 75% of the value of your pledged gold from some financial institutions. This high permissible loan-to-value (LTV) ratio helps improve the borrowing capacity of individuals. Additionally, the Indian government increased the loan-to-value percentage further to support entrepreneurs and households severely affected by the pandemic.

What is pledged gold?

Pledging gold means taking a loan against the value of one's gold assets, such as jewellery or ornaments. The borrower gives their gold items to the lender as a form of security but still owns them. If the borrower fails to repay the loan, the lender can sell the pledged gold to recover the money they lent. Pledging gold acts as a physical guarantee, making the lender more confident and willing to lend money, often with better terms for the borrower because the lender faces less risk.

What Is A Gold Loan?

Gold has been a saviour for many Indians, from weddings to festivities to tough times. People’s trust in gold has made it the most valuable commodity today. It is popularly known as a haven for various reasons. One of the most important ones is its liquid nature. It is easy to convert into cash and get a gold loan.

What is the process of pledging your gold to get maximum loan-to-value ratio?

The process of getting a loan on pledged gold with a high LTV ratio is simple. You take your gold items, such as jewellery or ornaments, to the lender. The lender evaluates the gold to determine its value, and based on this assessment, the lender offers a loan amount. You can get a higher LTV ratio or highest value on pledged gold by providing gold that is of high purity and has a high market value.

A loan against your valuable gold in any physical form is known as a gold loan. In this type of loan, gold acts as collateral for your cash needs.

How does one calculate the maximum Gold Loan value?

The loan amount that a lender can offer for gold depends on the loan-to-value (LTV) ratio, which is the proportion of the gold's appraised value that the lender is willing to lend. The LTV ratio usually increases with the purity and market value of the gold. To find out the maximum Gold Loan value, simply multiply the LTV ratio by the appraised value of the gold. For instance, if the LTV is 70% and the gold is worth Rs.10,000, the maximum Gold Loan value would be Rs7,000.

How To Get The Highest Value For Your Gold Pledge?

Various factors determine the sanctioned loan amount of your gold pledge. The most crucial characteristics include:

1. Loan-To-Value Ratio

This ratio helps a secured loan provider assess the lending risk. It is the percentage of the gold value that a financial institution can lend a borrower. The Reserve Bank of India (RBI) has set a cap on the loan amount limit upto 75% of the collateralized asset.

2. Gold Purity

The quality of gold jewellery is measured in carats (K) and ranges from 18K to 22K. The weight of jewellery pledged in 18K gold differs from that of ornaments in 22K gold. People who pawn 22k gold jewellery receive higher funds than those who pawn 18K jewellery.

3. Weight Of Gold

Lenders consider only the gold value of the ornament and not other precious stones like diamonds during the loan amount calculation. They exclude such pieces to assess the weight of the gold. A minimum of 10gm gold is necessary to avail of the gold loan.

4. Gold Form

Gold bars and bullions are not acceptable as collateral in a gold loan.

5. Current Rates

The market price of gold fluctuates daily. Guidelines set by the RBI require lenders to use the price of gold per gram over the past 30 days to determine gold grades.

Factors Affecting Gold Loan

Understanding these factors will empower you to make informed decisions, optimize your Gold Loan terms, and navigate the lending landscape with confidence.

1. Purity of Gold:

The purity of gold, often measured in karats or carats, is a paramount factor influencing the Gold Loan. Higher purity levels contribute to a higher loan amount. Lenders prefer purer gold, mostly in the range of 18 to 22 carats, as it holds greater intrinsic value, providing a more secure collateral base. Your gold items of 24 karats or close to it can expect to leverage assets for a more substantial loan amount.

2. Current Market Rates:

The loan value depends on the gold prices, which can change according to the market conditions. Gold is a commodity that can be influenced by global or local factors, so the loan amount can vary depending on the price of gold at the time. You should keep track of the gold prices to know how they might affect your Gold Loan.

3. Loan-to-Value Ratio (LTV):

Lenders set Loan-to-Value Ratios, defining the percentage of the gold's appraised value that they are willing to offer as a loan. This ratio plays a pivotal role in determining the maximum loan amount. Higher LTV ratios mean you can secure a larger loan relative to the appraised value of your gold. Lenders consider factors such as risk tolerance and market conditions when establishing LTV ratios.

4. Loan Tenure:

The loan tenure is the period that you agree to pay back the loan, and it can affect the interest rates. Longer tenures may have lower interest rates, which can make the Gold Loan more affordable in the long run. However, you should also consider your repayment ability, and make sure you can pay the loan without any financial difficulty.

5. Interest Rates:

Interest rates on Gold Loans vary among lenders and significantly impact the overall cost of the loan. Lower interest rates translate to lower overall repayment amounts, making the loan more affordable for you. Factors influencing interest rates include the lender's policies, market conditions, and your creditworthiness.

6. Gold Appraisal:

The loan amount depends on the gold appraisal, which is the process of checking the purity and value of the gold that you pledge. Lenders use professional methods to appraise the gold and determine its worth, which affects the loan amount that they offer. You should choose lenders that have a good reputation for fair and accurate appraisal practices, so that you get a reasonable valuation of your gold.

What are the types of gold that can be pledged?

When you apply for a gold loan, the most important thing is the type and quality of your gold. Many people use jewelry as their option for getting funds. Most lenders accept gold that has a purity level between 18 to 22 karats, which is a good balance between the beauty of your gold and its eligibility for funding.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is a leading gold loan lender. Since its inception, it has achieved a hassle-free experience for various gold loan borrowers. We have successfully provided gold mortgage loans to 6 million satisfied customers who received their funds efficiently.

IIFL offers competitive interest rates and flexible gold loan repayment terms for short-term gold loans. We also ensure the safety of your collateralized physical gold until complete repayment. There are absolutely no additional costs at the redemption of your gold mortgage. If you have any questions, you can contact our 24-hours customer service team via phone or live chat.

Getting a gold loan has never been easier! Walk into any of our branches pan India, fill out an e-KYC and get your loan approved in under 30 minutes.

Frequently Asked Question

Q.1: What is a gold loan?
Ans: A loan where you pledge your gold ornaments and articles to receive funds is known as a gold loan. Gold articles act as collateral in a gold loan.

Q.2: What is the loan-to-value ratio?
Ans: The loan-to-value ratio is essentially an assessment of lending risk performed by the secured loan provider. It determines the percentage of the gold value that a financial institution can lend a borrower. The RBI has set a cap on the loan amount upto 75% of the collateralized asset.