When you need quick funds, a gold loan can be a convenient solution. But have you ever wondered how the amount you can borrow is determined? The answer lies in gold valuation — the process of assessing your gold’s worth. Let’s dive into the key factors that affect gold valuation and how banks calculate the gold loan amount.
Purity: The Karat Count Matters
One of the primary factors in the gold loan valuation process is the purity of your gold, measured in karats (K). The higher the karat value, the purer the gold, and consequently, the higher the loan amount. In India, the most common purities are:
|
Karat |
Purity Percentage |
|
22K |
91.6% |
|
18K |
75% |
So, if you pledge 22K or 24K gold, you can expect a higher valuation compared to 18K gold.
How Purity Affects Per Gram Valuation
It is necessary to know how the gold per gram valuation for loans is done. Let’s say the current market price of 24K gold is ₹5,000 per gram. If you pledge 10 grams of 22K gold, the gold per gram valuation for loans would be:
22K gold price = 24K gold price × (22/24)
= ₹5,000 × (22/24)
= ₹4,583 per gram
10 grams of 22K gold = ₹4,583 × 10 = ₹45,830
Weight: Every Gram Counts
The weight of your gold is another crucial aspect of how gold loan valuation is done. However, it’s important to note that only the weight of the gold content is considered. Any non-gold components, like stones or gems, are excluded from the calculation.
For instance, if you have a gold necklace weighing 20 grams, but it includes 2 grams of stones, the lender will only consider 18 grams of gold for valuation.
Market Price: Staying Updated is Key
Gold prices fluctuate frequently based on various domestic and international factors. To ensure fairness, lenders often use the average market price of gold per gram over the past 30 days for loan valuation. This helps mitigate short-term fluctuations and provides a more stable benchmark.
You can stay updated on the latest gold prices through various online portals, newspapers, or by visiting your lender’s website to learn how the gold loan valuation is done.
Loan-to-Value Ratio: The 75% Rule
The Loan-to-Value (LTV) ratio determines the percentage of your gold’s assessed value that you can borrow. Currently, the Reserve Bank of India (RBI) has set the maximum LTV ratio at 75%. This means that lenders can offer you a loan amount up to 75% of your gold’s valuation.
Calculating Your Gold Loan Amount
Now that we understand the key factors affecting gold valuation, let’s see how banks calculate your gold loan amount and know how the gold loan valuation is done:
- Assess the purity of your gold
- Weigh the gold content
- Determine the average market price per gram
- Calculate the total value of your gold
- Apply the LTV ratio to derive the loan amount
Here’s an example:
Purity: 22K
Weight: 50 grams
Average Market Price: ₹4,800 per gram
Total Gold Value = 50 grams × ₹4,800 = ₹2,40,000
LTV Ratio: 75%
Loan Amount = ₹2,40,000 × 75% = ₹1,80,000
Other Factors That Influence Valuation
While purity, weight, market price, and LTV ratio are the primary drivers of how banks calculate the gold loan amount, a few other factors can also impact the valuation:
- Type of Gold Items: Coins and bars generally have a more straightforward gold loan valuation process due to their consistent purity. On the other hand, jewellery pieces might have a slightly lower valuation, as they often contain alloys mixed with gold.
- Condition and Age: The condition and age of your gold items can also affect their valuation. Newer and well-maintained pieces may command a higher value compared to older or damaged ones.
- Assay Certification: Gold items with assay certification can fetch a premium valuation. The certification guarantees the purity and authenticity of the gold, reducing the risk for the lender.
- Market Sentiment: During times of economic uncertainty, gold prices often rise as investors seek safe-haven assets. This can positively impact the valuation of your gold.
To Summarize…
Understanding the gold loan valuation process empowers you to make informed decisions when pledging your gold for a loan. By considering factors like purity, weight, market price, and LTV ratio, you can estimate the loan amount you’re eligible for and plan your finances accordingly.
At Airtel Finance, we offer transparent and competitive gold loan valuations. Our team of experts ensures that you receive the best value for your gold, along with a seamless loan application process. Unlock the power of your gold with Airtel Finance and meet your financial needs with ease.
FAQs
- What is the minimum purity of gold required for a gold loan?
Most lenders accept gold with a minimum purity of 18K (75% purity) for gold loans. However, higher purity gold like 22K or 24K can fetch a better valuation and loan amount. - How often do gold prices change, and how does it affect my loan amount?
Gold prices can fluctuate daily based on various market factors. However, lenders typically use the average price over the past 30 days for valuation, providing a more stable benchmark for your loan amount. - Can I get a loan against gold coins or bars?
Yes, you can pledge gold coins or bars for a loan. In fact, these items often have a more straightforward valuation process due to their consistent purity compared to gold jewellery. - Is there a minimum weight requirement for gold items to be eligible for a loan?
Lenders may have different minimum weight requirements for gold items. However, most banks and NBFCs accept gold items weighing 1 gram or more for loans. - How does the Loan-to-Value ratio affect my gold loan amount?
The LTV ratio determines the percentage of your gold’s assessed value that you can borrow. Currently, the RBI has capped the LTV ratio at 75%. So, if your gold is valued at ₹1 lakh, you can get a maximum loan amount of ₹75,000.
