The rising prices of gold may have been bane for some but for a large section, the price rise is a boon. For those looking to quickly build up funds to meet immediate liquidity requirements to tide over the crisis caused by the COVID-19 pandemic, the rate increase means they can mobilize higher sums at lower amounts of collateral through gold loans. Although you can still take out a personal loan, a gold loan is a much more flexible and sometimes more affordable option.
Gold loans entail limited red tape, and lenders do not test the credit scores of borrowers or ask for evidence of earnings to determine cash flows. In fact, you can rebuild or even better your credit score through timely repayments during the entire repayment tenure.
The amount of the loan that you are likely to get will depend on the gold evaluation that includes checking its purity. The best sum for an 18 to 24k karat array will be approved and you get the gold loan per gram.
The first goal is to estimate your suitability for a gold loan. Here’s a simple step guide to find out everything about your qualification for a loan:
What is Per Gram Rate And The LTV?
To know your loan availability, it’s necessary to know the value of gold per gram, which is the average cost of 22 Carat gold on the marketplace on the day the loan is made available. The gold loan rate per gram is focused on something called the LTV or loan-to-value ratio, once you’re armed with this knowledge.
The best way to describe the LTV is to base the gold’s true value on the maximum loan sum that can be used. Put simply, and the LTV defines whether you could be getting Rs. 10,000 or Rs. 5 lakh on the price of gold. The Reserve Bank of India has set a maximum LTV limit on gold at 75% for NBFCs. That implies you will get a loan against gold of up to 75 percent of your gold value, depending on the value of your gold as well as the per gram cost at that given point of time.
The universal formula
The loan rate of gold per gram is determined by combining the net weight of gold with the market rate of a per gram as well as the gold pureness factor. The net weight itself is measured as the total weight of jewelry minus the weight of every other item besides the gold in it, i.e., the weight limit determined on a diamond necklace is the total weight of the ring minus the value of the diamond. If this is determined the formula will read as follows:
Amount of Gold Loan = Total Weight X Rate/Gram X Purity
On arrival of the gold loan per gram, the amount that can be loaned is determined on an LTV basis. Various banks and NBFCs have various gold LTV ratios on sale. To have the loan against gold per gram, the trick is to choose a bank or NBFC well for maximum profits.
i.e. If you have 10 gms of gold priced at INR 51,440 /- per 10 Grams as of 25th Aug 2020 you can get up to INR 38,500 /- from most of the NBFCs, alternatively you can use the Gold Loan Calculator maintained by the same NBFCs to check the amount of gold required for the desired amount of capital.
Bank or NBFCs
So, what distinguishes various institutions and NBFCs in terms of their offered gold loans? The thing to note is, the decision to receive a gold loan at the highest amount per gram is not limited to various banks and NBFCs providing LTV. Nor is it based on the basic problem of how to measure a gold loan.
In fact, the overall benefit on your gold loan is calculated in relation to the rate of interest on the basis of the LTV. A high LTV means little if you are forced to pay an exorbitant interest rate. Currently, you repay the loan, right? Ideally, taking advantage of the most advantageous gold loan per gram currently should also be considered along with LTV, the interest rate of a bank or NBFC. Looking at higher LTV and lower inflation is better as compared to the better balancing act in gold loans available.
A consumer must bear in mind four factors when purchasing gold jewelry-checking the quality of gold, recognizing the exchange policies provided by the jeweler, knowing the product warranty, and having a clear bill breakdown.