We are all aware of how important gold loan is in the functioning of the elemental components of the economic framework like financial resources, monetary instruments and other forms of economic resources that are important for the growth of the economic environment. In this article, we are going to discuss the definitions and concepts of gold loans.
Before pointing out, identifying and defining each term associated with gold loans separately and individually, we must first understand the underlying concept which forms the guiding principle behind the functioning of gold loans. Firstly, gold loans primarily can be defined as that loan facility which can be availed by the borrower only if he can deposit a certain portion of his asset as collateral security to the banking institution. Upon the valuation of such collateral security, the loan would be granted by the private commercial banking organizations to the borrower. However, while discussing in detail we must have a vivid idea about the concepts and terms associated with the functioning of gold loan eligibility and how they are important in this context.
Following are some of the main concepts associated with the functioning of gold loans and other inner meaning-
Collateral Security Deposit- Whenever we study anything about gold loan functioning we must understand the concept associated with collateral security deposit because it is an integral part of the conceptual analysis of gold loan facilities. We would divide the definition of collateral securities which would first be defined by us. Then we would highlight how it is relevant in the context of gold loans. Firstly collateral securities can never be defined as the items like gold jewellery, ornaments and expensive items which are tangible and are deposited to the PNB bank gold loan before the loan is granted to the borrower. It is a security that the borrower would be paying back the entire loan amount within the due date and would take back the gold deposited upon the completion of the payment of the required loan amount. In the second part of the definition, we would be understanding how it is relevant in the concept of gold loans. In gold loans, you must deposit collateral securities to avail the gold loan facilities. Once you deposit the collateral securities, instruments would be utilized to analyze the amount of gold that has been deposited by the borrower and the analysis would reveal that a certain percentage of the assets according to the baking policies would be converted into the monetary amounts and would be provided as loan to the borrower. Thus the concept of the collateral security deposit is very important in the context of gold loan functioning and implementation.
Loan To Value Ratio- The second concept associated with a gold loan that assumes a high amount of importance is Loan to Value Ratio. Loan to Value Ratio refers to the percentage of the amount of gold deposited that is converted into the monetary amount and is provided as a loan to the borrower. The concept of the Loan to Value Ratio would be clear if we use an example of monetary measures. For example- you are depositing gold assets worth 20 lac to the private commercial banking institution which is responsible for providing the loan to you. According to the banking policies, 80% of the amount of gold deposited would be converted into the monetary amount and would then be provided as the original loan to the borrower. Thus here, 16,00,000 would be the amount of loan that would be disbursed to the personal bank account of the borrower. The borrower would thus be able to withdraw this money and utilize it further for economically productive activities and purposes.
Conclusion
Thus the two aforementioned concepts are very important for the proper functioning of gold loan facilities in the market as they help the borrowers in comprehending the true and original value of the loan facility that they would be able to avail.
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