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Finance

Gold loan per gram explained for smarter financial solutions

Key Takeaways

  • Gold loans allow you to liquidate the value of your gold assets quickly.
  • The gold loan per gram value depends on purity, weight, and market rates.
  • Features of gold loans include flexible repayment and lower interest rates.
  • IDFC FIRST Bank offers secure gold loans with competitive interest rates.
22 May 2023 by IDFC FIRST Bank

For generations, gold has been a cornerstone of financial security in Indian households. Whether used as an investment or an ornament, gold is a dependable asset that can be liquidated during financial emergencies. Among the most popular options is the gold loan, where individuals pledge their gold to access funds quickly and conveniently.

A critical aspect of understanding gold loans is the gold loan per gram valuation. This metric determines how much money can be borrowed based on the weight and purity of gold. For anyone considering a gold loan, grasping this concept is essential to make an informed decision and maximise the benefits.

What is a gold loan?
 

A gold loan is a secured loan where borrowers pledge gold jewellery or ornaments as collateral. The loan amount depends on the gold's market value, purity, and weight, with lenders typically offering up to 75% of its value. This valuation, known as the gold loan per gram, ensures borrowers receive funds proportionate to their assets.

The Reserve Bank of India (RBI) regulates the gold loan process to ensure borrower safety. Gold loans offer liquidity without extensive documentation and provide a quick and reliable solution for urgent financial needs.

 

How gold loans work
 

The process of obtaining a gold loan is simple and efficient –

  1. Gold valuation – The lender evaluates the purity (18-24 carats) and weight of the gold. The current market price determines the gold loan amount per gram, which forms the basis of the loan offer.
  2. Loan offer – Based on the valuation, the lender provides a loan offer that specifies the interest rate, tenure, and loan amount. Borrowers are encouraged to compare multiple offers to find the most favourable terms.
  3. Minimal documentation – Gold loans are known for their minimal documentation. Typically, only KYC documents like ID and address proof are required.
  4. Loan agreement – Borrowers and lenders sign a formal agreement outlining all terms, including the gold loan interest rate.
  5. Disbursal – Once the formalities are complete, the loan amount is disbursed, often within hours.

Borrowers repay the loan along with interest to reclaim their pledged gold. This straightforward process, combined with quick disbursal, makes gold loans a preferred choice for many.

Factors affecting gold loan per gram value
 

The gold loan per gram value depends on several factors –

  1. Purity of gold – Higher purity, such as 22-24 carats, results in a higher per-gram valuation. Gold below 18 carats is generally not accepted for loans.
  2. Market rate – Daily fluctuations in the gold market affect the loan amount. Borrowers should check current rates before pledging their gold.
  3. Weight of gold – The heavier the gold pledged, the higher the total loan amount. For example, pledging 50 grams of 22-carat gold at ₹5,000 per gram could yield a loan of ₹1,87,500.
  4. RBI regulations – The RBI caps the LTV ratio at 75%, ensuring borrowers receive a safe and fair amount relative to the gold’s value.

Understanding these factors can help borrowers maximise their loan eligibility while minimising costs.

Features of gold loans
 

Gold loans come with several attractive features –

  1. Loan-to-value ratio (LTV) – Borrowers can receive up to 75% of the gold’s market value. For example, a gold loan amount per gram of ₹4,000 can translate into a ₹3-lakh loan for 75 grams of gold.
  2. Gold loan interest rate – These loans have lower interest rates than personal loans. The gold loan interest rate by IDFC FIRST Bank, for instance, starts from 9.75% per year, making it one of the most competitive in the market.
  3. Flexible repayment options – Borrowers can choose repayment schemes, including bullet payments (interest and principal at the end), monthly interest servicing, or EMIs.
  4. Minimal documentation – Gold loans require basic KYC documents, making the process simple and hassle-free.
  5. Quick processing – Funds are often disbursed within hours, ensuring borrowers can meet urgent financial needs without delay.

Gold loan vs. other loan types
 

Gold loans have distinct advantages over other loan types –

Parameter Gold loan Personal loan Credit card loan
Interest rates Low (8.40% – 10.25% p.a.) Moderate (10% – 24% p.a.) High (15% – 48% p.a.)
Processing time Few hours Days Instant
Collateral Required (Gold) Not required Not required
Documentation Minimal Extensive None to minimal

 

Choosing a gold loan often proves more economical, especially for short-term liquidity needs.

Who should opt for a gold loan?
 

Gold loans are ideal for –

  1. Small business owners – Entrepreneurs seeking quick working capital to manage day-to-day operations or purchase inventory.
  2. Individuals without regular income – Those lacking proof of stable income can still qualify for funds.
  3. Emergency fund seekers – Families needing immediate cash for medical, educational, or other personal expenses.

This versatility makes gold loans a lifeline for many borrowers in various financial situations.

Gold loan repayment options in detail
 

Borrowers can select from several repayment methods –

  1. Bullet payment – Interest and principal are paid in one lump sum at the end of the loan tenure.
  2. Monthly interest servicing – Borrowers pay interest monthly, with the principal due at maturity.
  3. EMIs – Equal monthly instalments spread over the loan tenure, covering both principal and interest.

These flexible repayment options empower borrowers to align their payments with their financial capacity, reducing the risk of default.

Benefits of a gold loan from IDFC FIRST Bank
 

IDFC FIRST Bank provides unique advantages –

  1. Fixed interest rates – The gold loan interest rate by IDFC FIRST Bank is fixed, starting at 9.75% p.a., with no step-ups during the loan tenure.
  2. No income proof required – This makes the loan accessible to individuals with low or irregular income.
  3. Digital and paperless processes – The entire application process, including eKYC and eSign, is seamless and hassle-free.
  4. Quick disbursal – Loans are processed within 45-90 minutes, ensuring immediate liquidity.
  5. Secure storage – Pledged gold is stored in sealed pouches within state-of-the-art vaults, ensuring its safety throughout the loan period.

Precautions when taking a gold loan
 

Gold loans are convenient and accessible, but borrowers should approach them cautiously to avoid potential pitfalls. Understanding the terms and ensuring the safety of pledged gold are crucial steps. Here are some precautions to take when opting for a gold loan –

  1. Verify the lender’s reputation – Ensure the lender is RBI-compliant and transparent about terms.
  2. Understand LTV and interest rates – Familiarise yourself with the gold loan per gram value and applicable charges.
  3. Read the fine print – Check for hidden fees like appraisal or late payment charges.

Taking these steps can help you make the most of your gold loan while safeguarding your assets and finances.

Common myths about gold loans
 

Despite their popularity, gold loans are often misunderstood. Many borrowers hesitate to take gold loans due to common myths and misconceptions. Let’s address some of these myths to help you make an informed decision –

  1. Myth – Borrowers risk losing their gold.
    Fact
    – Reputable lenders follow strict legal processes, and borrowers can avoid issues by repaying on time.

  2. Myth – Gold loans are expensive.
    Fact
    – With lower interest rates, gold loans are cost-effective for short-term needs.

  3. Myth – Interest rates fluctuate frequently.
    Fact
    – Fixed-rate options, like those from IDFC FIRST Bank, ensure predictability and stability.

Debunking these myths can help borrowers confidently consider gold loans a viable financial option.

Conclusion
 

Gold loans provide a reliable and efficient way to unlock the value of your gold assets. By understanding the concept of gold loan per gram, borrowers can maximise their loan eligibility while enjoying benefits such as lower interest rates, flexible repayment options, and minimal documentation. With quick processing and regulatory safeguards, gold loans are an excellent option for addressing immediate financial needs.

If you’re considering a gold loan, consider the offerings from IDFC FIRST Bank. With competitive fixed interest rates, a paperless application process, and secure storage of pledged gold, the bank ensures a seamless borrowing experience. Explore IDFC FIRST Bank Gold Loans today and take a step closer to meeting your financial goals.

FAQs

How does a gold loan work?

Gold loans work by pledging gold as collateral to secure funds. The lender assesses the gold’s purity and weight to determine the gold loan per gram value. Borrowers receive a loan based on this valuation and repay it with interest to reclaim their gold.

What is a gold loan?

A gold loan is a secured loan where borrowers pledge gold ornaments or coins to access funds. The loan amount is based on the gold’s market value, purity, and weight, offering a quick and reliable financial solution with minimal documentation.

How to calculate gold loan interest?

To calculate gold loan interest, multiply the loan amount by the gold loan interest rate and the tenure. For example, a loan of ₹1 lakh at 1% per month for six months incurs ₹6,000 as interest. Use online calculators for accuracy.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.