For centuries, gold has symbolized both wealth and security, serving as a valuable asset that can be a financial lifeline during challenging times. A popular and convenient method for harnessing the worth of your gold is by considering a gold loan.
In this article, we’ll delve into the elements that dictate the amount of gold needed when applying for a gold loan, equipping you with the knowledge to make well-informed choices.
Let’s get started.
Understanding the Gold Loan
Loan against gold is really a guaranteed loan which enables you to definitely take a loan against the need for your gold jewellery, coins, or ornaments. The total amount you can borrow depends upon different facets, mainly the quantity and quality from the gold you pledge as collateral.
Factors Determining the Gold Loan Amount
- Purity of Gold
The purity of your gold plays a critical role in calculating the loan amount you can secure. Gold is commonly assessed in carats, with 24 carats representing the purest form. As the carat value increases, so does the value of your gold, resulting in a correspondingly higher loan amount that you can anticipate receiving.
- Weight of Gold
The weight of your gold items plays a significant role in the loan amount calculation. Heavier items typically result in higher loan amounts. The lender will assess the weight in grams to determine the loan amount.
- Current Market Price
The cost of gold on the market is continually altering. Lenders make use of the market cost to calculate the borrowed funds amount. Generally, you will probably get a number of the gold’s market value as the amount borrowed, typically varying from 60% to 80%.
- Loan-to-Value (LTV) Ratio
LTV is a critical parameter in gold loan disbursal. It represents the percentage of the gold’s value the lender is willing to lend. Different lenders may offer varying LTV ratios, but a typical range is between 60% to 80%. So, if your gold is valued at Rs. 8,29,668 and the lender offers an LTV ratio of 70%, you can expect to receive a loan of 5,80,776.
- Interest Rates
The interest rates on gold loans can vary from lender to lender. A lower gold loan interest rate means you’ll pay less for the borrowed amount over the loan tenure, making it a significant consideration when calculating how much gold you need for the loan.
- Loan Tenure
The duration for which you want to take the loan also influences the loan amount. Longer tenures may result in higher loan amounts and more interest paid over time. It’s essential to strike a balance between the loan amount and tenure that suits your financial needs.
Eligibility Criteria for Applying for Gold Loan
- Ownership of Gold: To become qualified for any gold loan, you have to own gold assets for example jewellery, coins, or ornaments. You can’t use gold owed to another person as collateral for that loan.
- Age Requirement: Typically, you must be at least 18 years old to apply for a gold loan. Some lenders might have variations in this age requirement, so you should check with the specific lender you plan to approach.
- Identification Proof: You will have to provide a valid government-issued identity proof, plus a passport, Aadhaar card, license, or voter ID card. This can be essential to confirm your identity.
- Address Proof: You will have to provide a valid government-issued identity proof, plus a passport, Aadhaar card, license, or voter ID card. This can be essential to confirm your identity.
- Gold Purity and Weight: The gold you offer as collateral should meet the lender’s standards for purity and weight. Generally, lenders prefer gold with a purity of 18 carats or higher. The weight of the gold also influences the loan amount you can get.
Conclusion
A gold loan can be a practical solution when you need quick access to funds. The amount of gold required for a gold loan depends on various factors, including the purity and weight of your gold, the current market price, the lender’s LTV ratio, interest rates, and loan tenure. It’s crucial to choose a reputable lender like IIFL Finance that offers transparent and fair assessments to ensure you receive the maximum value for your gold assets.
Before taking a gold loan, it’s advisable to research different lenders, compare interest rates, and understand the terms and conditions thoroughly. By doing so, you can make an informed decision and use your gold assets wisely to meet your financial needs while ensuring the security of your precious possessions.
