Gold is a valuable asset that can help you secure a loan in times of financial need. Many banks and NBFCs (Non-Banking Financial Companies) offer gold loans, making them easily accessible for urgent cash requirements. Unlike personal loans, which involve extensive documentation and credit checks, gold loans are secured by the gold itself, allowing for quicker access to funds.
The Reserve Bank of India (RBI) regulates gold loans to ensure fair lending practices. Lenders determine the loan amount based on the Loan-to-Value (LTV) ratio. As per RBI guidelines, banks and NBFCs can lend up to 75% of the gold’s market value. This means that if your gold is worth Rs 1 lakh, you can receive a loan of up to Rs 75,000. However, some lenders may offer lower amounts depending on their risk assessment policies.
Adhil Shetty, CEO of Bankbazaar.com, says, “The valuation of gold is based on the prevailing market price. Since gold prices fluctuate, the loan amount may vary accordingly. Borrowers should check the latest gold rates before applying for a loan to get the best possible value for their pledged gold.”
Also Read: Why your loan EMI has not dropped despite RBI’s rate cut
Factors Affecting Loan Amount
Several factors determine how much you can borrow against your gold. The primary factors include:
1. Gold Purity – Lenders accept gold with purity levels of 18 karats or more. Higher purity gold is valued more and qualifies for a higher loan amount.
2. Weight of Gold – Only the gold content is considered for valuation. Any stones, gems, or other attachments on jewellery are excluded.
3. Current Market Price – The loan amount depends on the prevailing gold rate, which changes daily. Higher gold prices mean higher loan eligibility.
4. Lender’s Policy – Some NBFCs offer better loan amounts by structuring their loan products differently. However, they must still adhere to the 75% LTV cap.
Interest Rates and Loan Tenure
Gold loan interest rates vary depending on the lender. Typically, banks offer lower interest rates, starting from 9-10% per annum, whereas NBFCs may charge rates as high as 28% per annum. The difference in rates is due to varying risk assessments and repayment structures offered by different lenders.
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