Gold has been a preferred hard asset for Indians to invest in. In addition to this, gold jewellery is a vital part of festivities and auspicious occasions. When you are in a cash crunch, gold loans like indiagold Gold Loan and Muthoot Finance Gold Loan are great financing options.
As the banking crisis deepened in the US and Europe, gold prices across the globe witnessed a hike. At such junctures, gold financing is a good option as you get a higher loan amount. This has made gold financing a more attractive option for many.
But how does a lender decide the valuation of gold when you avail of a gold loan? Read on to know more about how gold valuation is decided and the various factors influencing its valuation.
How is Gold Valued for Gold Loans?
When you opt for any secured loan, the lender generally provides a proportion of the asset’s value as the loan amount. The same is the case with gold loans. Various gold loan facilities, like Muthoot Finance Gold Loan scheme, or the ones from Bajaj Finserv provide a loan-to-value (LTV) ratio of up to 75%.Â
However, note that the lenders take into account the prevailing market prices to determine the amount to be sanctioned as a loan. Gold prices fluctuate on a daily basis because a number of economic and geopolitical factors influence them.Â
For instance, if the gold pledged is valued at ₹2 Lakhs today in the commodity exchange market, the lender may provide you with 75% of that amount, i.e., ₹1.5 Lakhs. However, if you apply for it, let’s say tomorrow, the loan amount that you get may change depending on gold prices.
The lender also determines the value of the pledged gold based on its quality and purity. You may get a higher value if you put up 22K gold rather than 18K gold as collateral. Moreover, you can also use an online gold loan calculator to determine the loan amount you can get against your gold jewellery.Â
A gold loan EMI calculator provides an amortisation schedule that lets you plan for the repayment of your loan. Â
Factors Influencing the Valuation of Gold for Gold Loans
As mentioned above, the value of the gold you pledge depends on the purity of the gold as well as the prevailing domestic prices. The Reserve Bank of India (RBI) has stated that lenders must follow a standard mechanism to evaluate the value of gold for gold loans.
So, lenders like indiagold, Muthoot Finance maintain an in-house team that determines gold’s valuation. You can also use an online gold loan calculator to get an approximate value of your pledged jewellery.
Following are some of the factors that influence the valuation of gold for gold loans:
Prevailing Gold Prices
As mentioned above, the price of gold fluctuates daily based on the following:
- Demand and supply
- Central bank policies
- Economic and political trends
- Inflation
- Import duty
- Interest rates
Lenders estimate the value of gold for gold loans as per the current market price of this precious metal. However, note that the loan amount that you may get does not fluctuate as significantly as the prices of this commodity.Â
This is because the RBI has mandated that lenders estimate the value of gold based on an average of gold prices in the last month.
Purity of Gold
The loan amount that your lender will sanction also depends on the purity of the pledged metal. The unit for measuring the quality of gold is Carat or Karat. The higher the quality of metal, the higher will be its value and the loan amount.
Weight
The weight of the gold jewellery that you pledge is one of the most important factors in determining the loan amount. The higher the weight of the pledged jewellery, the higher will be the loan amount you may get.
However, it is important to note that when you avail gold loan, the weight of gems and stones is not added. Hence, if you wish to avail higher loan amount, it is advisable to put purely gold jewellery or gold bars and coins.
LTV Ratio
As mentioned above, the loan-to-value (LTV) ratio is an important factor that banks rely upon to estimate your gold loan amount.Â
Major gold loan facilities like the Muthoot Finance Gold Loan scheme, Muthoot Fincorp Gold Loan provide an LTV ratio of up to 75%. This is because the RBI has capped it as the limit in the case of gold loans.
In conclusion, the amount that you may get by putting up your gold as collateral depends on various factors. One of the major factors that influence your gold valuation is the prevailing prices of this metal in the last month.Â
In addition to this, the LTV ratio is another significant component that determines the value of your pledged yellow metal.Â
Make sure that you opt for a trusted gold loan facility. This is because they abide by the RBI’s rule of providing an LTV ratio of 75% on gold loans. Also remember that the purity of this asset and its volume are two of the other significant factors that influence your gold valuation. So, pledge your assets wisely and get the funds you need.
Also Read:Â World Gold Council: Indian gold market evolving, demand for lightweight, studded jewellery grows
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