Gold loans or loans against gold are the most secured form of loan type. It is convenient to get a gold loan in comparison to other loans. It has a quick approval and disbursal process which is hassle-free too. A gold loan is where the borrower pledges his/her gold ornaments with the lending institution, which could be a bank or non-banking financial companies (NBFCs).
The gold pledged should be 99.99% pure to get the best offer of the loan amount. In the case of gold jewelry, the borrower should be aware that at the time of valuation of gold, only the pure gold is taken into consideration and the weight and value of stones, gems, and other metals are not considered. Thus to get the maximum loan amount prefer pledging the bank minted gold coins, the borrower will get a better loan amount offered. The interest rates offered by the kotak mahindra bank gold loan are lower. Being private lending institutions they give a higher interest rate but quick approval and disbursal of the loan. The public sector banks have a lower interest rate. One thing common is that they both disburse the loan amount within 24 hours of approval.
The gold loan amount depends upon the loan-to-value ratio, which means that the lending institutions take a margin amount and offer a certain percentage of the amount to the borrower. It is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. This ratio was recently increased by the Reserve Bank of India due to the COVID-19 pandemic. Considering the need for funds in this pandemic, the RBI issued new guidelines in providing a 90% loan amount to the borrowers which were earlier 75%. This new guideline has been issued until March 31, 2021. They did not lower the interest rates but stated that in the case of any necessary amendments to be made to help the Indians economically, they will reduce the gold loan interest rate also.
Generally, the lower the loan to value ratio is higher is the chance that your loan gets approved and the lower is the interest rate.This increase in loan-to-value ratio has increased the demand for gold loans, as the borrower is now eligible to get a higher amount on the collateral. The hike in the gold price has also increased the demand for the same.
Conclusion:
Loan-to-value ratio is the amount that is to be offered by the bank to the borrower on the gold pledged after the whole valuation process. It helps the banks likes and NBFCs to take a margin on loan amount in case of any failure on the repayment of the loan.
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