The value of your eligible gold can influence your borrowing capacity, while the applicable LTV determines how much of that value can be considered for a loan.
The value of your gold and the amount you can borrow against it are not necessarily the same. While gold prices influence the assessed value, the potential loan amount also depends on eligible gold weight, purity, valuation method and loan-to-value (LTV) limit.
Understanding how these factors work together can help you estimate your borrowing capacity more accurately before applying for a gold loan.
How is a gold loan amount calculated?
You can understand your potential gold loan amount in two stages. First, the eligible gold is valued based on its net weight and applicable gold value. Then the applicable LTV determines how much of that assessed value can be considered for the loan.
Assessed gold value = eligible net gold weight × applicable gold value per gram
Potential loan amount = assessed gold value × applicable LTV
For example, suppose you have 20 gm of eligible gold and the applicable gold value is Rs. 7,000 per gram.
| Step | Calculation | Result |
|---|---|---|
| Eligible gold weight | 20 gm | 20 gm |
| Assessed gold value | 20 g × Rs. 7,000 | Rs. 1,40,000 |
| Applicable LTV | Rs. 1,40,000 × 85% | Rs. 1,19,000 |
| Potential loan amount | Assessed value × LTV | Rs. 1,19,000 |
This shows the difference between the value assigned to your gold and the amount you may be able to borrow against it.
How does the gold rate affect your potential loan amount?
The applicable gold value is one of the inputs used to assess eligible gold. If your weight and purity remain unchanged, a change in the applicable value can change the assessed value.
If you are considering a gold loan in Kolkata, checking today gold rate in Kolkata can help you understand prevailing market prices. However, the lender may use a different value for loan assessment based on its applicable valuation methodology.
For example, with 20 gm of eligible gold:
| Applicable Gold Value Per Gram | Assessed Gold Value |
|---|---|
| Rs. 6,000 | Rs. 1,20,000 |
| Rs. 6,500 | Rs. 1,30,000 |
| Rs. 7,000 | Rs. 1,40,000 |
A higher applicable gold value can therefore increase the assessed value. However, the potential loan amount still depends on the applicable LTV.
The value used for assessment may also differ from the retail gold rate you see displayed in the market because the lender follows its applicable valuation methodology.
What does LTV have to do with your loan amount?
LTV represents the proportion of the assessed gold value that can be considered towards the loan, subject to applicable terms.
For relevant consumption loans, Bajaj Finance currently states maximum LTV limits of up to 85% for loans up to Rs. 2.5 lakh, up to 80% for loans above Rs. 2.5 lakh and up to Rs. 5 lakh, and up to 75% for loans above Rs. 5 lakh and up to Rs. 2 crore.
For example, if the assessed gold value is Rs. 3,00,000, an 80% LTV would result in a potential loan amount of Rs. 2,40,000. At 75% LTV, the potential amount would be Rs. 2,25,000.
The same assessed gold value can therefore result in different potential loan amounts when different LTV limits apply. The applicable LTV depends on the relevant loan amount, purpose and terms.
How do the gold rate and LTV work together?
The gold rate influences the assessed value of eligible gold, while the applicable LTV determines how much of that value counts toward the loan.
When the gold value increases but LTV stays the same
Suppose the applicable LTV remains at 85%. If the assessed value increases from Rs. 2,00,000 to Rs. 2,20,000, the potential loan amount increases from Rs. 1,70,000 to Rs. 1,87,000.
The assessed value increases by Rs. 20,000, while the potential loan amount increases by Rs. 17,000 because the same 85% LTV applies.
When a different LTV applies
The outcome can change when a different LTV applies. For an assessed gold value of Rs. 3,00,000, an 80% LTV results in Rs. 2,40,000, while a 75% LTV results in Rs. 2,25,000.
This is why the gold rate alone cannot tell you how much you may be able to borrow. The applicable LTV also needs to be considered.
What else affects the assessed gold value?
Gold rate and LTV are important, but other factors can affect the value used in the calculation.
1. Gold purity
The purity of your eligible gold affects its applicable value. Jewellery and ornaments are assessed based on their eligible gold content rather than their total ornament value.
2. Net gold weight
The calculation considers eligible gold weight. Stones, gems and other non-gold components do not form part of the intrinsic gold value.
3. Applicable valuation method
The value used for assessment follows the lender’s applicable valuation methodology and relevant reference prices. The rate displayed in the market may therefore differ from the value used for the final loan assessment.
Also Read: How a Loan on Mutual Funds Helps You Avoid Full Redemption
Gold value and loan amount are not the same
The assessed gold value represents the value assigned to your eligible gold after considering applicable valuation factors. The potential loan amount is the portion of that value that can be considered after applying the applicable LTV.
For example, if your assessed gold value is Rs. 2,00,000 and an 85% LTV applies, the potential loan amount would be Rs. 1,70,000, not the full Rs. 2,00,000.
How can you estimate your potential loan amount?
If you are considering a loan against gold in Kolkata, use this three-stage approach:
- Identify your eligible gold: Note its purity and net weight.
- Estimate the assessed value: Multiply the eligible net weight by the applicable gold value per gram.
- Apply the LTV: Multiply the assessed value by the applicable LTV to estimate the potential loan amount.
This provides a starting estimate. The final loan amount remains subject to the applicable valuation, LTV and eligibility terms.
What should you check before relying on your estimate?
Before making a borrowing decision, consider:
- the eligible net gold weight and purity
- the applicable valuation methodology
- the LTV applicable to the relevant loan amount
- the final eligibility and applicable terms
Considering these factors together gives you a clearer estimate than looking at the gold rate alone.
For instance, if you have checked today’s gold rate in Kolkata to estimate the value of your jewellery, remember that the displayed price is only a reference. Your actual borrowing capacity will depend on the lender’s assessment of your eligible gold and the applicable LTV.
The prevailing gold rate can influence the assessed value of your eligible gold, while the applicable LTV determines how much of that value can be considered towards your loan. Your net gold weight, purity, and the applicable valuation method also affect the calculation.
Understanding the sequence from gold value to assessed value to LTV and potential loan amount can help you estimate your borrowing capacity more accurately.
With Bajaj Finance Gold Loan, borrowers can explore their eligible loan amount based on the assessed value of their gold and the applicable lending terms. However, the maximum amount available is not necessarily the amount you need. Choosing a loan amount that meets your requirements and remains manageable to repay is equally important.
Terms and conditions apply.