Gold Loan Eligibility Calculator Jun 2017

What is a Gold loan?

Gold Loans are loans that can be availed against the security of gold jewelry for meeting any urgent and quick fund requirements for business or personal consumption. The loans are processed almost immediately within a few hours and rate of interest is in the range of 12-22%.

Loan against jewellery and ornaments

With a view to avoid speculation on Gold, RBI has allowed banks to offer loans on the following gold items only:

• Jewelry or ornaments with a purity of 18 carats or more
• Specially minted gold coins of banks of less 50 grams

Gold objects that are not eligible for gold are:

• Gold bars
• ETFs (exchange traded funds)
• Specially minted coins of more than 50 grams.

Gold loan eligibility criteria and calculation

Eligibility for a gold loan is completely dependent on the assessment of weight and purity of the gold jewelry .that is being pledged. Once you approach a bank or a gold loan company, it will conduct a valuation of your gold jewelry and then apply a LTV of up to 75% of the calculated value of the jewelery to be pledged to arrive at gold loan eligibility. The value of Gold Jewelry and amount of gold loan eligibility is calculated based the following steps:

Step 1: The bank or finance company will test the level of gold purity and adjust the price of pledged gold in proportion of its purity.

Purity of gold is defined in carat, which means parts of gold. A 100 % pure gold is defined as 24 carat gold. So, 18 carat gold would mean an 18 carat of gold mixed with 6 carat of other metals.

• The bank or gold company will adjust the value (price of gold) of jewelry for its purity. The price of 22 carat gold of last 30 days will be adjusted proportionately for the purity of gold pledged. For instance, the value/price of a 18 carat gold will be calculated by multiplying the average price of 22 carat gold for the last 30 days by multiplying it by 18/22.
• Banks use 30 days average rates of 22 carat gold prices as directed by RBI. The rates used are as published daily by Bombay bullions association.

Step2: Weight of gold jewelry is netted off for weight of stones and gems

The bank will measure the net weight of your gold jewelery by deducting the weight of the stones and gems that have been used in the gold jewelery.

Step 3: Bank will calculate the value of the jewelry as eligible for gold loan and apply a LTV to arrive at your gold loan amount eligibility

• The bank will calculate the value of the jewelery to be pledged by multiplying the net weight of your gold jewelry as calculated in Step 2 above with the adjusted price of gold as calculated in Step 1 above.
• The bank then will then apply a LTV to the calculated value of jewelry to calculate your gold loan amount eligibility.
• Banks are allowed to lend at a maximum LTV of 75%. However there are multiple schemes with LTVs between 60-75% on offer by leading gold loan providers.
• Higher the LTV, higher the interest rate charged.

Gold Loan Vs Personal Loan?

The range of rate of interest on Gold Loan is as high as that of unsecured personal loans. However, if you take a Gold loan at a lower loan to value ratio of around 60%, the rates can be as lower at 12-14%. This can be possible by pledging more jewelry to reduce the LTV on the loan. Further, with zero processing fees and pre-payment penalty, the all-inclusive cost of Gold Loans will almost always work out to be lower than that of Unsecured Personal Loans.

When should you opt for a Gold Loan?

• You need the loan extremely urgently for a relatively short period of time.
• If you want to avoid extensive paper work. Availing a Gold Loan requires only basic KYC documents.
• If you lack a credit history or do not have a very high CIBIL score. Gold Loans do not undergo CIBIL checks.
• If you possess gold jewelry that you are willing to hypothecate.
• If you want to reduce you all-inclusive cost of borrowing. Gold Loans typically carry nil processing fees and pre-payment penalty, thus reducing the overall cost of loan.

When and in what circumstances should I not choose a Gold Loan?

• If you are not comfortable with parting away with your gold jewelry and handover its custody to the bank. Your jewelry is typically kept safe by banks and specialised finance companies such as Muthoot or Manappuram, the only hitch is that you cannot use the jewelry, while it is with the bank.
• If you are looking for loans of more than 18 months.
• If you have alternative assets to pledge which may fetch you a lower rate of interest.

Gold Loan Eligibility of All Banks