India is one of the largest importers of gold in the world. With its long-known affinity for this precious metal, Indians view gold in jewelry and as a form of investment. It can be used any time to fund cash requirements by taking a credit against gold at the time of medical emergencies, business expansion, marriage expenses, etc.
Jewellery loan or loan against gold ornaments is a type of secured finance that a borrower can take from a lender by pledging one’s gold ornaments as collateral. The finance amount that is sanctioned is generally a certain percentage of the market value of the gold. A jewellery credit is one of the easiest and fastest ways to arrange funds at a time of urgency. Because of the growing popularity of gold loans, many private banks, nationalized banks, and NBFCs offer jewellery credits at attractive interest rates.
The value of gold is directly related to the purity of the gold and the current market rates of gold. The higher the purity of the gold, the higher is the amount of finance sanctioned. Most of the lenders have an in-house valuation team and an online valuation method on their websites that can help borrowers figure out the exact amount possible for them to raise as credits against pledged jewels or gold coins.
Several points are kept in mind in the process of gold evaluation; they are as below:
The gold quality for gold loans is measured in karats (k), which is an important factor to be considered in the final financed amount to be sanctioned. Diamonds are measured in carat (ct), which is different from Karats k). Many alloys are present in gold jewelry, such as copper, zinc, cadmium, and silver, due to which gold jewelry typically contains 22k gold. The sole purpose of doing this is to make gold damage-resistant. Even the color of gold also varies with the variety and the proportion of different alloys included in gold. Most of the jewelry contains 18k to 22k gold. The amount of jewellery finance for low carat gold will differ from the amount of jewellery finance for high carat gold.
As mentioned earlier, an LTV ratio is mandatory to be maintained while granting jewellery credits. The RBI decides this rate, currently set at 90% of the gold value. Borrowers will not fetch finances on the gold’s entire value, as the lenders keep the difference amount with them. Here is a gold loan calculator to understand the finance amount that can be sanctioned.
The market value of gold keeps fluctuating due to various external reasons. RBI has mandated that lenders are required to use the average rate of the last 30 days of per gram rates of gold for the process of gold valuation. For example, if the rate per gram of gold by taking the average rates of the last 30 days happens to be Rs.5000, then for gold jewelry of 22k purity, the per gram value will be Rs.4,583 (5000*22 = 1,10,000/24).
Any precious stones, diamonds, or gems are not considered while taking out the value of the gold jewelry. In the general sense, the value of gold bars and gold coins is higher while taking a credit against gold.
The weight of the gold is one of the most important factors that are considered to zero down on the finance amount. To find out the weight of the gold, an estimate is arrived at by taking the difference after removing the weight of any stones, diamonds, gems, or attachments that may be included in the jewelry that is to be kept as collateral. One can get a higher credit amount by pledging jewelry that has more weight of gold in it. However, at least 10 gm of gold is required in jewelry or any other gold article to be accepted as collateral.
Jewellery credits require minimum paperwork. The lender does not check a borrower’s credit score or evaluate his repayment capacity, as long as the borrower has kept quality gold for jewellery credit. They are easy to arrange and can be taken to meet temporary financial glitches.
How is the Loan Amount Decided?
The jewellery loan based on the purity of the gold can be approved by the lender depending upon its weight. Based on that, the market value of gold is determined, keeping in mind the current rate. Up to 90% of the pledged gold items can be sanctioned as finance amounts. This is also known as the loan-to-value ratio (LTV). The initial LTV ratio was 75%, which RBI moved up to tide over the financial crisis to 90% till 31st March 2021. This means that for every Rs.100 of gold kept as collateral, a credit of Rs. 90 can be taken against it.
The amount of the finance is based on the quality of the gold that is kept as collateral. The lenders have their valuation mechanisms via a physical valuation team in their premises and online verification mechanisms.
Anyone who is of 18 years of age and above can apply for a jewellery credit.
An identity proof, an address proof, a PAN card, and a passport-sized photograph
Jewellery credits are fast and can get sanctioned quickly. If all the documents and collaterals are in place, the finance can be sanctioned within as early as 1 hour.
You should always keep gold jewelry with a licensed bank or NBFC, as taking a jewellery loan from an unlicensed lender can be risky. Shriram City stores the gold ornaments of their customers safely in a room built according to government regulations, equipped with proper electronic surveillance to protect the gold.
Finance foreclosure is nothing but repayment of the credit amount in a lump sum instead of monthly EMIs. Generally, a foreclosure fee is charged by the lender in case of early repayment. Shriram City does not charge any foreclosure fees from its customers. The customer can redeem his gold kept as collateral by simply repaying the principal amount and interest accrued up to that date.
A simple rate of interest, flexible tenure of the loan, a suitable repayment schedule, and a hassle-free online application process make Shriram City a preferred choice for a jewellery loan lender.