How is the value of gold for a Gold Loan calculated?

The loan amount for gold valuation depends on both the purity of the gold and the prevailing gold rates.
How is the value of gold for a Gold Loan calculated?
2 min read
22 May 2023

Gold has long been considered a valuable asset, and its versatility extends beyond being a precious metal to being a sought-after collateral for securing loans. Individuals who own gold and wish to obtain instant capital without selling their gold assets often explore gold loans, wherein the loan amount is determined based on gold valuations. Therefore, if you are seeking to avail a gold loan, understanding how lenders calculate the value of gold becomes crucial.

Crucial factors that impact the valuation of gold for calculating the gold loan amount include:

Gold purity

The purity of gold is a key factor in determining its value for a gold loan. Gold is measured in karats, with 24 karats representing pure gold. However, gold jewellery and ornaments are rarely made of pure gold. The purity level is assessed by analysing the gold's composition and comparing it to the standard purity levels. Most lenders offer gold loans only on 22-karat gold jewellery. Gold loans cannot be availed on other gold assets like coins, watches, utensils, and bars.

Weight of the gold jewellery

The weight of the gold is another crucial element in calculating its value for a gold loan. The weight is measured in grams. To determine the weight accurately, the gold jewellery is carefully weighed using top-of-the-line karat metres. It is important to note that the weight considered is the actual gold content and not the total weight of the item, which may include non-gold components like gemstones or other materials. The higher the weight of pure gold, the higher its value for the loan calculation.

Current gold rate

The valuation of gold for a gold loan is heavily influenced by the prevailing gold rates in the market. Gold prices fluctuate daily based on several factors, including supply and demand dynamics, economic conditions, geopolitical events, and so on. Lenders and financial institutions determine the loan amount by considering the current market price of gold.

Loan-to-Value (LTV) ratio

The Loan-to-Value (LTV) ratio is an essential component in calculating the value of gold for a gold loan. It represents the percentage of the loan amount that can be sanctioned against the value of the gold. The loan-to-value ratio, which is determined by the Reserve Bank of India (RBI), is presently set at up to 75% of the gold's value.

By using our online gold loan calculator, you can assess the value of the gold jewellery you intend to use as collateral. The calculator offers an estimation of your loan liability and the gold loan interest rate, considering either the weight of your gold in grams or the desired loan amount.

Apply for a loan against gold jewellery.


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