How to Calculate Gold Loan Eligibility

1. Introduction

• The concept of a gold loan: It is nothing new in India. Since gold has always held the status of a precious metal, since the early years, people would pledge gold jewellery or coins to borrow funds.

• Why knowing eligibility beforehand matters: Knowing the eligibility before applying for a gold loan is crucial, as it allows the prospective borrowers to plan their finances. The eligibility checks can help in understanding whether a loan can be secured against the said gold collateral. And if yes, then how much and what would the interest rate be on the loan? It helps with planning, avoiding surprises, choosing how much gold to pledge and much more!

• What you will learn: In this article, we will cover key factors which are taken into consideration to calculate gold loan eligibility, the gold loan calculation method, and the eligibility checklist. This will enable you to check your eligibility before even applying for a gold loan, and plan your loans accordingly.

2. Key Factors That Determine Gold Loan Eligibility

• Gold weight and purity: The amount of gold loan you can avail is directly proportional to the value of the market gold collateral. The market value is determined by various factors such as net weight in grams and the purity (e.g., 18K/22K). Higher weight and purity mean a higher value of the gold, and vice versa.

• Current market price of gold: As highlighted earlier, the amount of gold loan is directly proportional to the market value of gold. The per-gram gold rate fluctuates every second, and the bank or the lenders use this rate to determine the value of the collateral to calculate the loan amount that can be provided against gold collateral. One can get a higher loan amount for the same gold collateral during times when the gold rates are inflated, as compared to times when the rates are in a slump. Hence, it is important to understand the current gold rates in the market before applying for a gold loan and plan your loan accordingly.

• Loan-to-Value (LTV) ratio: The Loan-to-Value ratio (LTV) means the amount of loan as a percentage value of the collateral. Lenders typically offer up to about 70-75% of the gold’s value. To better understand this concept, let's assume that the market value of your collateral is INR 1,00,000 and the LTV offered by the lender is 70% hence, the maximum loan that can be availed against the said collateral is INR 70,000. To avail a loan of a higher amount, always check which lender is offering a higher LTV value on their gold loan offering, and choose accordingly. Lenders like indiagold offer one of the highest LTV in the gold loan market.

• Minimum criteria & documentation: Eligibility actually also requires you to meet age, identity/KYC, and gold quality criteria. Since different lenders may have different eligibility criteria, such as the purity level, gold weight, age of the applicant, etc. It is recommended to check with he lender on documentation and eligibility for the loan.

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3. The Simple Calculation Method Eligible Loan Amount = (Gold weight in grams) × (Purity factor) × (Market rate per gram) × (LTV ratio)

• Example: 50 g of 22K (≈ 91.6% purity) at ₹5,000/gram, LTV = 75%
  → 50 × 0.916 × 5,000 × 0.75 = ≈ ₹1,71,450

• Many lenders provide online calculators to simplify this process: You can use an online gold loan calculator, which is typically available on the lender’s website, to get a fair idea of the amount of the loan as well as the indicative interest component based on your inputs for the gold loan application.

• Note that the final amount can differ at the time of actual branch evaluation (gross vs net weight, presence of stones, jewellery type): Only the net weight of gold in the jewellery is considered to be eligible for the gold loan scheme. I.e. total weight minus the weight of stones and other non-gold design elements is used to calculate the eligible gold loan amount.

4. Step-by-Step Guide to Estimate Your Eligibility in the Gold Loan Process

1. Weigh your gold (net weight minus non-gold parts, such as precious stones): the net weight of the collateral will help the lender assess and provide the final loan amount that can be availed by collateralising the said gold ornament.

2. Ascertain its purity (look for the hallmark, consult a jeweller): Based on the assessment results of purity, the applicable gold rate is applied, based on which further calculation of the viable gold loan amount is calculated.

3. Check the prevailing market rate for that purity/grade: Based on the collateral’s purity levels and the prevailing market rate for that purity level, the gold loan amount is calculated. Higher-priority gold ornaments command a higher gold rate and vice versa.

4. Apply the LTV ratio (for example, 70-75%) as per the lender’s policy. The Loan-to-Value (LTV) ratio determines the maximum amount that can be lent as a percentage function of the market value of the gold collateral. Lenders like indiagold offer one of the highest LTVs in the gold loan space.

5. Use an online calculator or plug in to the formula to get an estimate. Online gold loan calculators will help you understand the viability of the loan amount and the payable loan interest.

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5. Eligibility Checklist & Practical Tips

• Ensure age and identity/KYC criteria are met (salaried/self-employed/pensioner). Doing this will ensure there are no roadblocks in the application process, and the loan is assessed and processed seamlessly.

• Your gold jewellery is of the acceptable type (karat standard as per the lender) and is clean/undamaged. The lender will do the assessment; however, it is also recommended to clean the collateral before taking it to the lender for assessment, to ensure the fair weight of the gold collateral is reflected.

• Understand the lender’s LTV and gold valuation date (since gold price changes): Each lender would have their own LTV ratio as per their internal guidelines and risk appetite, which dictates the maximum loan amount that can be available., Make sure that you consider these factors to avoid any surprises at the time of assessment and loan amount eligibility.

• Be aware of the impact of gems/stones: many lenders calculate on pure gold weight only. The loan is typically given against the net weight of the gold in the collateralised jewellery.

• Plan repayment: even though eligibility is calculated, ensuring you can service interest/repay principal is key. It is imperative not to over-borrow, as borrowing within limits and repayment capacity can help repay the loan efficiently, without seeing significant delays.
• Compare multiple lenders: small differences in accepted purity, LTV, processing fees, and gold loan interest rates can have a big impact on the loan and the net amount that you’ll pay. Comparing lenders will help you understand which lenders are offering gold loans that best suit your needs. Lenders like indiagold consistently provide great gold loan offerings..

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