Gold is a favorite and often the most trusted asset in our country. Each household irrespective of their financial status will have some amount of gold with them; some of it may have been passed down across generations with each generation adding to it. Whether old or new gold can come to your rescue in times of need as it can be mortgaged and you get a loan against it. There are many banks and financial institutions that offer loan against gold to applicants who fulfill the required eligibility criteria. Here we will discuss the gold loan and how much can you get?
A Brief About Gold Loans:
These loans are becoming increasingly popular owning to the quick turnaround time required to sanction these loans and also because gold loan interest rates are generally lower than personal loan rates. Both gold loan and personal loan are often used as a source of funds when one needs them for miscellaneous purposes. As per the guidelines laid down by RBI, NBFCs and all banks can grant a loan up to 75% of the market value of the value of gold. When seeking a gold loan the applicant mist definitely compares interest rates (NBFCs generally charge higher), other charges that may apply, the loan tenure and the repayment option before they choose a lender.
How Much Gold Loan Can You Get?
Though gold loans are given against gold as collateral there are still eligibility criteria to be met regarding income and age, the lender will not ask for your credit report to assess your creditworthiness but these loans are reported in the CIR and thus do impact the credit rating in future.
Thus the amount of gold loan you can get will not depend only on the value of the gold that you mortgage but it will also depend on your income as the bank needs to make sure that you are able to service the loan and pay the installments on time.
Let’s assume there is an applicant who has jewelry worth Rs 50 lakhs which he wants to mortgage but he earns Rs. 15,000 a month. As per the guidelines specified by RBI, the lender can sanction a loan up to 75% of the gold value which will be Rs. 37.50 lakhs but most lenders do not offer a loan up to 75% of the gold value. They generally offer a loan at an LTV of 60-65% which is Rs. 32.50 lakhs in this case. However, no prudent lender would be willing to offer a loan of this amount as they would know that the borrower will not be able to repay the monthly installments for the loan with his /her current income.
Interest on loans that are given at low LTV ratio is lower than compared to loans that are offered at a higher LTV ratio. The value of gold, coupled with the LTV ratio at which the bank offers the loan and the income level of the applicant influence the amount of loan one can take. Some lenders may also lay down the minimum income level at for the applicant to apply for a loan and also state that the applicant must prove his ability to service the monthly installments. In case of a gold loan taken for agricultural purposes, the lender may seek a proof that establishes land ownership.
Apart from the income, another limiting factor is maximum loan amount that the lender is willing to offer as gold loan. For example, the maximum gold loan offered by Kotak Mahindra Bank is Rs. 25 lakhs and for ICICI the maximum limit is Rs. 20 lakhs. So if we consider the above example even if the applicant is able to service the EMI for a loan of Rs. 32.50 lakhs he would get a loan of that amount as it is against the laid down guidelines of the bank.
So your loan will depend on the weight and purity of the gold, your income levels and bank’s policy regarding the LTV ratio and the maximum amount of loan that can be extended to an applicant.