Gold loans have become an increasingly popular way for individuals to access quick funds in times of financial need. Gold loan providers offer loans against gold jewellery and ornaments, providing a convenient way to unlock the value of idle assets. When taking a gold loan, one of the most common questions is: what is the minimum gold required for a gold loan? This article will help you explore the multiple aspects of gold loans, including the minimum amount of gold required for a gold loan.
What Is the Minimum Weight Required for a Gold Loan?
The minimum weight required for a gold loan varies across lenders. While some may require as little as 1 gram, others might set the minimum at 10 to 20 grams. It's best to check with your specific gold loan provider to understand their requirements before applying.
Also, if you want to pledge more than 10-20 grams of gold, you might have to submit additional documents for loan approval.
What Is the Minimum Purity Required for a Gold Loan?
Gold jewellery comes in varying levels of purity, measured in carats. 24 carats is considered 100% pure gold. The minimum purity of gold ornaments required for a gold loan varies across lenders:
- Most banks and Non-Banking Financial Companies (NBFCs) require a minimum purity of 18 carats of gold to extend a gold loan.
- Some lenders may accept gold jewellery of lower carat purity, but the loan-to-value ratio (LTV) and loan amount will typically be comparatively lower than if you use higher-purity gold.
- Some lenders may require a minimum purity of 20 carats or 22 carats for gold jewellery in specific categories, such as bridal wear, coins or bars, large loans, or antique jewellery.
- High-purity 24-carat gold in coins or bars can achieve the maximum LTV and loan amount per gram of gold pledged.
A minimum of 18 carats purity is recommended to get a reasonable LTV and maximise the loan amount against your gold collateral. Also, higher gold purity means higher resale value in the market.
Before pledging your gold, check the minimum purity criteria and documentation required by your gold loan provider. If you only have lower-carat jewellery to pledge, opt for financial institutions that accept a lower minimum purity. This ensures you get the best possible terms and the highest loan amount against your gold.
Key Factors That Determine Gold Loan LTV Ratio
The LTV ratio depends on various factors, such as:
- Type of gold jewellery: The LTV is higher for pure gold biscuits or coins compared to jewellery. Jewellery attracts lower LTV due to making charges and wastage.
- Purity of gold: 22-24 carat gold jewellery gets higher LTV than 18-20 carat impure gold.
- Quality of jewellery: Jewellery with complex designs or Kundan/Polki may have lower LTV than plain gold jewellery.
- Location: LTVs are higher in urban metro cities compared to smaller towns and rural areas.
- Lender’s risk appetite: Different loan providers have varying policies. Banks tend to be more conservative than NBFC gold loan companies.
- Loan amount: For higher loan amounts, the LTV ratio may be reduced.
- Loan tenure: Longer tenure loans usually have lower LTV.
Final Words
A gold loan is one of the most efficient ways to finance your short-term funding requirements. All you have to do is ready the gold (jewellery or bullion) that you are ready to pledge and file your gold loan application.
The amount of gold you are required to pledge depends on a range of factors. Still, most financial institutions in India require you to pledge at least 10-20 grams of gold as collateral. It is advisable to conduct thorough research to avail of a gold loan at the most attractive terms.
