How Does Gold Loan Amount Get Calculated? 

In India, the concept of taking a loan against gold ornaments is not new. People have been borrowing money by pledging their gold assets for a long time. The only difference is that traditional moneylenders have been replaced by authorized financial institutions. As a result, the entire process of applying for a gold loan is more streamlined. Nowadays, many lending institutions, including banks and NBFCs, are offering hassle-free and quick gold loans.

 With simplified processing, lower interest rates, and minimal documentation, gold loans are the most preferred option among borrowers. Along with this, there is no restriction on the end-use of the funds obtained from a gold loan. Whether you want to buy something, plan a trip, cover educational expenses, or expand your business, you have complete flexibility.

 By taking a gold loan at home, you can arrange a large sum of money within a short period. However, the amount you borrow against your gold ornaments is determined by several things. Some of them include:

Per-Gram Rate

While taking a gold loan, the per-gram rate is defined as the value you get for one gram of gold. To calculate this per-gram rate of gold, lending institutions take several factors into consideration such as gold purity, market rate, etc. Every financial institution has a different per-gram rate for gold loans that can be checked online. For example, borrowers can search for reputed NBFCs like Muthoot Finance gold loan per gram rate.

Gold Purity

The purity of gold ornaments affects the per-gram rate of a gold loan. As a result, it has a major impact on the loan amount you are eligible for. Generally, gold’s purity is measured in Karats, with 24 Karats being the highest. The purer a borrower’s gold ornaments are, the higher their loan amount will be. The minimum Gold Purity should be 22 Karats.

Weight

The weight of gold ornaments is also a major factor that affects the loan amount. As a result, borrowers can get a higher amount if they choose to pledge more weight of gold.

Current Market Rate

Depending on several factors such as inflation, demand, and supply, etc., the market rate of gold fluctuates every day. it is among the key determinants of the loan amount. Every lending institution considers the prevailing market rate when sanctioning a gold loan. When the market price of this precious metal experiences a rise, the per-gram rate also increases, leading to a higher loan amount.

Loan-to-Value Ratio

Loan-to-value ratio (LTV) is defined as the maximum permissible percentage of the current market value of your gold assets. According to the Reserve Bank of India, this is one factor that every lending institution must adhere to. However, the LTV ratio gets revised by the RBI from time to time. So, a higher LTV ratio leads to a higher loan amount, similarly, a lower LTV ratio also decreases the loan amount.

It is paramount to choose a reliable and trustworthy financial institution when applying for a gold loan. This will ensure that the amount calculated is fair and genuine.