What Do You Mean By Appraisal Of Gold Loans?

Mortgaging gold assets like jewellery in exchange for money is an age-old practice that has been common in India for centuries. In recent decades, a gold loan has become one of the most popular financing options available from banks and NBFCs because of its speedy disbursal process and minimal eligibility criteria.

Charges Associated With A Gold Loan

Anyone who has physical gold in the form of jewellery can opt for a gold loan. Gold loans are short-term secured loans and they are ideal for those facing a short-term liquidity crisis.

The interest rate on a gold loan depends upon the customer profile and the interest rate policy of the lenders. There are also a range of fees and charges that vary from lender to lender. Some of them are the valuation charges, stamp duty charges, loan processing charges, Goods and Service Tax (GST), etc. In some cases, lenders may levy foreclosure charges from borrowers in case they decide to clear all the pending dues prior to the completion of the loan tenor.

In addition, appraiser charges are also applicable on gold loans.

Appraisal Of Gold loans

Appraisal fees on gold loans is a payment made to the lenders to find the worth of the pledged gold. It is the fees that lenders charge to evaluate the weight, purity and market value of the gold ornaments being pledged to take out the loan.

Some lenders give the pledged gold to a third party to assess its value. But nowadays most large lenders have in-house gold jewellery valuation teams to know the purity of the gold.

The different factors that lenders consider for appraisal of gold loans are:

• Loan To Value Ratio (LTV):

It is the amount a consumer will get against the gold's value. In a typical gold loan, lenders offer up to 75% of the value of the pledged gold; the remaining 25% value is the bank margin.

• Gold Carats:

When it comes to valuation for a loan, the quality and quantity of gold jewellery and ornaments are important. In addition to the weight and purity of the gold, the existing gold prices also matter. The first step to gold valuation is to get the jewellery valued by a qualified jewel appraiser to know its exact value.
The purity of the gold is measured in carats. The purest and the most expensive form of gold is 24-carat gold that does not include any other metals. But the quality of the gold used in making jewellery is between 18k to 22k. In a typical 22k gold, the remaining 2k comprises alloys such as copper, silver, zinc, and cadmium to make the gold harder. Similarly, in 18k gold the remaining 6k is made of alloys. Higher the percentage of gold, the more value it fetches.

• Weight Of The Gold:

While calculating the weight of the gold, the value of any precious stones, gems, and diamonds are not taken into account. More the weight of the gold in the pledged jewellery, higher is the sanctioned loan amount. Some lenders have a minimum threshold, say 10 grams of gold, that the pledged jewellery must contain for being accepted as a collateral.

• Current Rate Of Gold Per Gram:

Gold rates depend on various external factors. Following the RBI guidelines, lenders use the actual average price per gram of gold for the past 30 days for the gold loan valuation process. The gold loan rate per gram is calculated by using the average gold rate per gram and the loan-to-value ratio.
The loan appraisal process takes only a few hours. Once the process is complete, the loan is disbursed to the bank account of the borrower quickly.

Conclusion

As per the guidelines issued by the Reserve Bank of India, almost all banks and NBFCs offering gold loans follow a standard procedure to determine the value of gold that borrowers pledge as a security. Some of the factors that help to determine the amount of loan approved by a bank against the pledged gold are the purity of the gold, weight of the gold, current rate of gold per gram, etc.

Also, borrowers should do research and find a lender who offers the maximum value for the gold. In addition, borrowers should select a lender who has a good customer support system.

IIFL Finance offers a fair gold loan valuation of ornaments for gold loans. The IIFL gold loan process is fast and easy. The loan disbursement process is smooth and can be completed in a few hours in most cases. IIFL Finance also offers several repayment options for the borrowers to choose as per their convenience.