4 Ways Gold Rate can Impact Gold Loan

Gold loan is a viable financing option to meet several requirements. And, why not?

The secured funding option does not just allow applicants to leverage their dormant assets but also helps them access substantial funds at a feasible interest rate. However, it is crucial to note here that the prevailing gold rates significantly impact this credit option. This makes it essential for an intending borrower to understand the concept from up close.

Take a look at these sections below to understand how gold rate influences this funding option.

These are 4 Ways in which Gold Rate Impacts Gold Loans

Loan-to-value is among the top factors that affect this secured funding option. As per the Reserve Bank of India's directive, the maximum LTV ratio is capped at 75%. In other words, as a borrower, you can access up to 75% of your gold’s value as funding.

To break it down, when the gold price surges, the amount of money made available to borrowers will also increase. However, in a declining trend, borrowers need to pledge more assets.

Gold price also impacts how borrowers tend to avail of a gold loan. For instance, when a borrower applies for a loan, financial institutions compute and set a standardised gold value. That value is set only after weighing in the fluctuations and prevalent gold rates that have been ongoing for more than a month.

However, financial institutions also factor in the predicted future gold rate trends to compute the standard value in some cases. Only after these are factored in does the lender evaluate the purity of the pledged gold.

Sometimes the lending institution asks gold loan borrowers to prepay a part of the ongoing advance. This usually happens when the gold rate fluctuates during the active tenure of a loan.

For example, suppose a lender extends 75% of the pledged gold's value as a loan. However, the gold prices manifest a decline in value for the future, which pushed the eligible amount to be 80% of the value. The change in valuation is not in favour of the lender, so the lending institution may ask the borrower to pay the resulting marginal difference or provide more gold.

However, you must note that if a borrower fails to comply with the new requirements, the lender might consider him/her a defaulter. To avoid tainting your credit report, make sure to gain full clarity on this aspect.

As an intending borrower, make it a point to keep an eye on the prevailing and possible trends that can influence the gold rates in the future.

A rising and declining gold rate trend impacts borrowers in different ways. In other words, when the gold trend rises, new borrowers will avail themselves of a higher value as a loan. Alternatively, borrowers applying for a gold loan during the declining gold rate phase will get access to a lower value.

This is how gold rate influences gold loans. Indeed, gold trends significantly impact the amount of money you would get sanctioned as a loan. However, as a borrower, you must also gain insight into the various factors that tend to influence the rate.

To elaborate, some external factors that tend to influence the gold loan rate include:

Having an idea about how these factors work in favour of the gold rate will allow you to time your loan or gold-related investment better.

Conclusion

Fluctuation in gold rate, loan-to-value, and standard valuation of loans has a noticeable impact on gold loans. Similarly, external factors such as demand for gold in this country, rate of inflation, and central bank's stance are other crucial factors that influence gold rate, which in turn impacts borrowers.

Keep up with such exciting gold loan-related topics by keeping an eye on our website. Also, if you wish to apply for a gold loan but are unsure about the procedure and requirements, feel free to contact us. Our Gold Genie will appear at your doorstep to walk you through an easy and hassle-free application process.