If you have gold jewellery and need urgent funds, a gold loan is a quick way to address your monetary needs. You can use the gold jewellery as collateral. But the question is how much jewellery can give you access to what amount of fund? Well, to make the most of it, it’s important to understand how the funds are disbursed on the basis of the amount or the gram of gold that is used as collateral.
The gold loan gram rate is calculated on two factors:
-Amount/gram of gold used as collateral
-Gold rate on the specific day
Understanding gold loan to value rate
Several factors influence the gold rate and as a result the gold loan rate too. These include the
-Purity of the gold,
-Current gold rate
-Loan-to-value (LTV) ratio
The loan to value rate is generally set by the lender. Understanding how lenders calculate the gold loan gram rate is important. It takes into account factors like gold purity, market prices and the LTV ratio, to help you make informed choices when applying for a gold loan.
What to keep in mind when calculating gold loan rate
1. Gold Purity
The purity of the gold you offer plays a key role in determining its value. Lenders typically accept gold with a purity between 18 to 24 karats. The higher the karat, the more valuable the gold, and the higher the loan amount you can secure. For example, 24-carat gold, being the purest and highest, will fetch a higher loan value than 18-carat gold.
2. Gold’s Market Rate
The current gold rate is another major factor in calculating the loan value. Gold prices change daily based on factors like global economic conditions, demand-supply, and geopolitical events. For instance, if the market rate in your area is Rs. 7,000 per gram, this will serve as the base price for your gold loan. Lenders typically offer up to 75% of the gold’s market value, so a higher market rate increases the loan amount you can access.
3. Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio determines how much of your gold’s market value the lender is willing to lend you. Most lenders offer up to 75% LTV. For instance, if the 24-carat gold rate is Rs. 7,000 per gram and you offer 100 grams, the total value of your gold would be Rs. 7,00,000. With a 75% LTV, the maximum loan you could get would be Rs. 5,25,000.
Example of Gold Loan Gram Rate Calculation
Let’s look at an example of how the loan for the current gold rate would work in a practical scenario.
- Gold Weight: 100 grams
- Gold Purity: 22 karats
- Market Rate of Gold: Rs. 7,000 per gram
- LTV Ratio: 75%
Step 1: Determine the total market value of the gold.
100 grams × Rs. 7,000 per gram = Rs. 7,00,000
Step 2: Apply the LTV ratio of 75%.
75% of Rs. 7,00,000 = Rs. 5,25,000
In this scenario, the borrower can avail a loan of Rs. 5,25,000 by offering 100 grams of 22-karat gold at the current market rate.