Understand The Basics of Gold Loans

Understand The Basics of Gold Loans

Enterprises and individuals rely on family members and friends to raise the capital that they need to move their businesses forward or for personal needs. Gold occupies a special place in the portfolio of the Indian population and is one of the oldest forms of secured investment, as gold has been prevalent in India for centuries.

A fast-emerging trend in securing quick credit is availing of a gold loan. Gold — which you’d generally find sitting inside lockers — is being pulled out and used to its maximum potential. Given the liquidity gold loans offer, it helps both the borrower and lender to complete transactions faster than all other forms of financing. Because of the emotional value associated with household jewellery, people rarely sell their gold
to meet their immediate financial needs; as an alternative, people pledge their gold ornaments as collateral and secure a short-term loan. The country has seen emergence of gold loan specialty players commanding high market valuation in the past few years.

So, where do we begin?

The first step is to figure out who will give you a gold loan. There are many Banks, NBFC & local Pawn Brokers that will give you a loan on gold ornaments. Niskha Finance is one of the best in the market. Second is to look at the eligibility. To calculate this gold loan eligibility, many banks and Non-Banking Finance Companies (NBFCs) have online calculators that will give you the loan amount. You could also check your loan eligibility here.

Here’s a quick, 3 step guide to know all about your loan eligibility & the terms that will help you evaluate better offers:

1. Understanding The Per Gram Rate And The LTV
   
   It is important to know the per gram rate of gold, which is the current rate of 22 Carat gold in the market on the day of availing the loan. Based on this, we can calculate the gold loan rate per gram based on something called the loan to value ratio or LTV.
   
   Simply put, LTV is the maximum amount of loan that you can get for the value of gold being pledged. For example, if the market value of the pledged gold on the loan date is Rs. 10,000 and the company is willing to give you a loan of Rs. 7,000, then the LTV is 70% (Loan Amount x 100 / Value of Gold i.e. 7000 x 100 / 10000 = 70%). The standard maximum LTV that can be availed on gold is set by the Reserve Bank of India at 75%. This means that based on the value of your gold, the maximum loan you can get is up to 75% of the value of your gold.
   
   To understand the amount you can get based on the value of your gold, therefore, knowing the per gram rate and the LTV ratio is crucial.
2. Calculating the Gold Loan Amount
   
   There are 3 parameters to consider, Per Gram Gold Loan Rate, Net weight of gold & LTV.
   
   The Per Gram Loan Rate is calculated by multiplying the per gram rate in the market and the purity factor of the gold. Net weight is calculated as the total weight of jewellery minus the weight of any other element aside from gold in it (example: Stones, pearls, Diamonds, Corals etc.).
   
   Gold Loan Amount = Net Weight X Per Gram Gold Loan Rate X LTV
   
   Once the Per Gram gold loan Rate is arrived; the amount that can be loaned is decided based on LTV with different banks and NBFCs offering different LTV ratios on gold. The key is to choose the bank or NBFC well to get the highest gold loan per gram.
3. Making An Informed Decision: Banks, NBFCs or Pawn Brokers
   
   How do we ensure that we are getting the best deal from Banks or NBFC’s on our gold loan offerings?
   
   The important thing is, apart from getting the highest eligible loan amount for your gold from the Bank or the NBFC, you should also be offered the best interest rate. It is not only about Highest Per Gram Gold Loan Rate or LTV, but also on the interest that would be charged during the tenure of the loan
   
   It is not in our interest if we have to pay an extremely high interest rate at the end of the loan because we were given the highest LTV. It’s best to look at higher LTV and lower interest rates in comparison for the best trade-off in availing gold loans

How can Niskha Finance help you?

To get the best Loan eligibility for your Gold and to ensure that you are not burdened with unnecessary interest, Niskha Finance brings you Loan Offers that save you upto 25% on interest as compared to other NBFCs. With its Simple Interest based schemes, you are no longer burdened by Compound Interest worries that give you unnecessary headaches.

With the Highest Per Gram Gold Loan Rate as compared to others in the market, it offers you the best deal where you can utilize your gold to the maximum loan amount at the lowest interest rate, making it the most profitable business proposition for any Entrepreneur or businessman.

Knowing the basics and understanding what works and what doesn’t while considering going for a gold loan is a great first step towards realising your dreams by availing a gold loan. You are now a step closer to understanding the complete process of Gold Loan and are empowered to be safe from any trickery or fraud.

If you’re looking for help with calculating your gold loan eligibility, Niskha has a very handy online Gold loan eligibility calculator to help!