What Types of Gold Are Eligible for a Gold Loan: An Expert Guide

Introduction

• Growing popularity of gold loans as a quick financing option: Gold loans are one of the most famous forms of asset-backed lending available in India. These are extremely popular for good reasons; these loans offer quick financing since the assessment process is not time-consuming, and also, the fact that gold has high liquidity in the secondary market makes it a lucrative asset for the lenders to lend against.

• Common confusion around which gold items qualify: Quite often, people get confused about what gold can be pledged for gold loan. Some common confusions include whether a gold loan can be availed against gold of low karat purity and whether it can be availed against non-jewellery items, such as coins and bars. In this article, we shall discuss the types of gold that are eligible for a gold loan.

How Gold Loan Eligibility Is Determined

• Role of gold purity (karat value): Gold purity plays an important part in eligibility as well as calculating the amount of loan that can be availed. Many lenders have an eligibility criterion regarding the minimum purity of gold collateral acceptable for lending. Generally, 18 karat, 22 karat, and 24 karat gold ornaments are eligible for a gold loan. Also, since the amount of loan eligibility is tied to the market value of the collateral, collateral of higher quality fetches a higher loan amount.

• Importance of weight and quality: Weight and quality also play an important role. Many lenders may have an eligibility criterion of a minimum loan amount. Since the loan amount is tied to the market value of the gold collateral, which in turn is affected by the purity and the weight of the collateral, the weight and quality do have an impact on the eligibility.

• Assessment methods used by lenders: The lenders do an in-depth assessment of the gold collateral to decide whether the gold is fit to serve as collateral, and if yes, what is the maximum amount of loan that can be availed against the said collateral. The lenders do this by first measuring the purity of the collateral, and then measuring the weight of the said collateral. Based on these two parameters, the market value of the gold is derived. And based on the market value, the maximum amount of loan is calculated, which is in line with the lender’s LTV policy. Lenders like indiagold offer a quick assessment process and offer a high LTV ratio.

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Eligible Types of Gold for a Gold Loan

Gold Jewelry

• Eligible purity range (typically 18K–24K): Gold is available in the market in various purity levels like 9 karat, 10 karat, 14 karat, 18 karat, 22 karat, and 24 karat. Typically, lenders accept gold collateral of 18 karat or higher purity. However, it is recommended to check with the lender to ensure that your gold collateral is acceptable for securing a loan.

• Accepted jewellery types (necklaces, bangles, rings, earrings): Generally, the type of jewellery has minimal impact on the eligibility to avail a gold loan. It is the weight and the purity of collateral which have the highest impact. However, it's best to check with the lender for any limitations on the type of gold collateral.

• Treatment of studded jewellery (stones removed during valuation): Studded jewellery or jewellery with diamonds or precious stones is treated in a specific way at the time of valuation. Since it is a gold loan, only the weight and purity of gold are considered while calculating the market value of the collateral to further calculate the loan amount.

Gold Coins & Bars

• Purity standards for bars: In case you’re planning to pledge gold coins or bars to avail a gold loan. It is important to ensure that you’re using hallmarked gold. The gold purity required for gold loan is pretty standard and certifiable with the help of hallmarking.

• Weight limits imposed by lenders: The lenders may have a minimum and maximum weight limit as part of their gold loan eligibility criteria.

• Hallmarked vs non-hallmarked bars: Although lenders do a purity check at the time of gold assessment, it is recommended to only collateralise hallmarked gold to ease and speed up the assessment process, since hallmarking is a standard way of determining the purity level of the said gold.

Gold Types Commonly Not Accepted

• Gold below the minimum purity level: certain lenders may have a minimum purity criterion for gold loans, and gold with purity less than the said criterion may not qualify.

• Gold-plated or imitation jewellery: Gold-plated or imitation jewellery is not viable ot avail a gold loan against. Only gold products and jewellery is eligible, it is recommended to check with the lender for any other lender specific criterion.

• Jewellery with excessive stones or non-gold components: A Gold loan is only provided against the gold in the collateral. Any diamond or precious stone in the jewellery is not accounted for.

Loan-to-Value (LTV) Ratio and Its Impact

• Definition of LTV in gold loans: LTV or loan-to-value ratio is the amount of loan that can be availed in percentage terms ot the value of the gold collateral. As per the guidelines set forth by the Reserve Bank of India (RBI), the maximum LTV ratio for gold loans is capped at 75%. In simple terms, if the value of the gold collateral is INR 100,000, then the maximum loan amount that can be availed against the said collateral is INR 75,000

• How gold type and purity affect LTV: Gold purity can impact the LTV ratio in gold loans. Although this is more specific to the lender, a lower purity of gold collateral may attract a lower LTV.

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Documentation Required for Gold Loans

• Identity and address proof: This is among the standard set of documents required to avail any type of loan. A gold loan is no different in this regard.

• Gold ownership declaration: This is a small declaration, usually a part of the gold loan contract, to attest to the fact that the pledged gold indeed belongs to the applicant.

• KYC document: KYC documents are also mandatory to avail a gold.

Expert Tips to Maximise Gold Loan Eligibility

• Choosing the right gold items to pledge: The Gold loan amount can vary based on the weight and purity of the collateral. I you have a loan amount that you wish to avail, it is essential to choose the right gold collateral, which is compliant with the lender’s policies.

• Maintaining gold purity and condition: Maintaining gold purity and condition is essential to be eligible ot avail a gold loan. Doing so can ensure that the eligibility criteria to avail a gold loan are met without any hiccups.

• Selecting the right lender: selecting the right lender is another essential process. Choosing lenders that are borrower-friendly in terms of eligibility can go a long way. Lenders like indiagold are one of the few lenders who offer extremely borrower-friendly gold loans.

• Understanding terms before pledging gold: Understanding the gold loan terms is another essential part of the whole gold loan process. Doing so can help iron out any confusion and make the whole process smooth!

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