Gold Loans are quite familiar and have been billed as one of the most potent financial instruments in the economy incorporating economic stability and helping the borrowers to deal with financial problems. The major concept of a Gold Loan is simplistic only when we understand the conception and functioning of the same.
Over the years the application and the environment of work that has been complemented by the gold loan facilities have become more vivid and expansive with elements being incorporated daily. Gold Loans firstly were considered to be financial instruments that can be utilized by depositing gold as collateral security. The valuation of the monetary amount that is obtained in return is called the gold loan and the borrowers use this loan facility to finance large scale purchases and bring about improvement in the investment environment of the country.
Gold Loans can only function properly without any hitches and problems if we are aware of the concepts that can be associated with the functioning capacities of gold loans and how they have been responsible for shaping the economy's financial resources. Examples of Gold Loan facilities include Canara Bank Gold Loan Online. Following are some of the most important terms associated with the system of gold loans, about which we must possess a definite idea-
Loan To Value Ratio- The most important concept associated with Gold Loan facilities is called the Loan To Value Ratio. This concept functions efficiently based on a guideline or principle that states that only a certain percentage of the gold deposited by the borrower would be converted into the monetary amount and would be lent to the borrower as a gold loan. The percentage of gold that would be converted into a monetary amount is called the Loan To Value Ratio. This ratio of conversion varies from one banking institution to another depending upon the terms and conditions of the banking institutions that are financing the gold loan facilities. For example- a borrower deposits gold jewellery and ornaments worth 20 lac to the private commercial banking institutions in the country. The banks through the evaluating instruments find out that the value of the gold is indeed 20 lac. According to the banking policies, only 80% of the gold value can be converted into the monetary amount of the loan. The key items associated with the functioning of the gold loans and how it has endured the toughest of times to emerge as a potent financial weapon. Thus 16 lac would be the final amount of the loan that is provided to the borrower by the banking institution. This ratio mandated by the banking institutions beforehand is called the Loan To Value Ratio.
Collateral Security Deposit- The second most important concept that must be kept in mind while financing gold loan facilities is the application of the principle of collateral security deposit. The process of collateral security deposit states that for availing a gold loan from the banking institution, a borrower has to deposit a certain percentage of gold jewellery or ornaments. Upon the valuation of this jewellery and ornaments, the correct value of the gold will be found out and then converted into a monetary amount which would be provided as a loan to the borrower by the private commercial banking institution. The system of Collateral Security Deposit is what makes gold loans such a secure loan and thus it incorporates the benefits of availing this facility which in hindsight improves the working of the loan operations. A clear understanding of the aforementioned concepts would reveal to you the fact that gold loans have improved from being just a loan facility to one of the biggest support systems of the borrower during hours of crisis and times of economic distress when the borrowers have been unable to finance the liquidity operations. The above two concepts have been most important in the peripheral functioning of gold loans and a clear understanding of these concepts has been important to understand how gold loans benefit economic operations and decision making.
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