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Gold is one of the most precious metals in the country. Whether for investment purposes or aesthetics, almost every household in the country has gold in the form of metal or jewellery.
In fact, many use gold as a hedge against inflation for two reasons – its price and liquidity. Moreover, it serves as collateral as you can get a gold loan with relative ease. However, more often than not, gold jewellery has other gemstones, like diamonds.
This can leave you wondering whether you can still avail a gold loan with such pieces. To know all about gold loans against diamond jewellery and other nuances of a gold loan, read on.
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Can you Get a Gold Loan with Diamond Jewellery?
If it is jewellery made primarily with diamonds, then you cannot get a gold loan against it. However, if it is gold jewellery with diamonds set on it, then you may be able to get a gold loan against it.
This is because lenders offer a gold loan based on the value of gold in the jewellery you provide as collateral. So, remember that the loan amount you will receive against your jewellery will depend on the gold value, i.e., the purity of the gold.
In the case of complete diamond jewellery, you can get a loan against it but only from specific lenders. However, the interest rate is comparatively higher than the gold loan interest rate. So, check the feasibility of the loan before availing such instruments.
How does a Gold Loan Work?
A gold loan is offered against gold jewellery, making it a secured loan. Once you apply for a loan, the lender will appraise your gold jewellery to get an estimate of its value. Based on that, they will offer you a loan.
The amount is generally only up to a certain percentage of the gold’s value. The value of the gold in your jewellery will be based on its purity (18K, 22K, 24K, etc.) and the prevailing gold rates.
For instance, consider that you wish to avail a gold loan against your jewellery of 22K that weighs 50 grams.
If the lender appraises your jewellery at the same purity and grams, the value of your gold would be approximately ₹2,75,000, assuming that the price of 1-gram 22K gold is ₹5,500. If the lender offers 80% of the value as a loan, you can get up to ₹2,20,000 as a loan. The ratio is also known as the LTV (Loan-To-Value) ratio.
Once you have the value, check the repayment terms. This is crucial because if you fail to repay the loan, the lender will seize your assets to recover the loan amount.
How to Get the Maximum Value in a Gold Loan?
To get the maximum loan amount against your jewellery, consider the following factors that affect the loan amount you can get:
- Purity
The purity of your gold jewellery plays a crucial role in determining the value of the gold in your jewellery. Lenders generally offer a gold loan against jewellery with a purity between 18K – 24K.
Suppose you have 18K jewellery; the gold in it is 75%, and the other 25% is other metals. As such, higher purity means a higher value and vice-versa because the gold present in it is higher.
- Price and weight
The value of your gold jewellery is determined by the actual price of it based on the current rates. So, if you have 50 grams of jewellery, its value will be determined by the price of 1 gram of gold for that day.
- LTV
LTV is the loan to value offered by lenders. Lenders don’t always provide the total value of your gold as a loan. Generally, the LTV for a gold loan ranges between 75%-90%.
This means that if your gold value is ₹2,00,000 and the lender has an LTV ratio of 80%, you can get up to ₹1,60,000 as a loan. Given this, you should choose a lender that offers a higher LTV, as you can get the maximum value as a loan.
Things to Keep in Mind When Availing a Gold Loan
Be careful while availing a gold loan against your jewellery because you are pledging your asset as security. So, remember the following points to ensure you make an informed decision.
- Check the lender’s credibility
Checking the lender’s credibility is a crucial step you cannot overlook. Choose a registered lender with a good reputation and is regulated by the RBI terms. This helps safeguard your precious assets.
- Compare different offers
Gold loan interest rate, LTV ratio, repayment flexibility and some of the essential factors of a gold loan. Since these factors generally differ for every lender, comparing them is vital in ensuring you get the best offer.
- Assess the repayment terms
Knowing the repayment terms and structure before availing the gold loan is key. Repayment terms are essential to look at because if you cannot repay the whole amount due to financial hardships, you will have to forfeit your asset.
- Review the fine print and other terms & conditions
Availing a gold loan without understanding the fine details and other terms and conditions is risky. Look at other charges levied by the lender and terms of appraisal to see if it offers you the best value.
Check the acceptable gold forms for a gold loan, as some lenders may not offer loans for certain jewellery. It is important to note that most lenders don’t offer a gold loan against bars or other forms.
When it comes to availing a gold loan, ensure that you get it only after careful consideration. Choose a lender that offers you the best in terms of loan value as well as a gold interest rate. This can help you ensure you get the funds you need at an affordable cost.
