Karat vs Carat: Understanding the Difference

Carat vs karat: Understanding the difference and its impact on gold loans

When you think of gold, you think of lasting value and trust built over generations. You choose gold because it does not tarnish and remains reliable over time. When buying or pledging gold, purity matters, and this is measured in karats, which show how much pure gold your jewellery contains. You may also hear the term carat, but that refers to the weight of gemstones like diamonds, not gold. Knowing this difference helps you make smarter financial decisions. When you apply for a gold loan, the karat value of your jewellery directly affects its valuation and the loan amount you can receive.
 

What is a carat in gold?

A carat is a unit of measurement used to determine the purity of gold. In the context of gold, one carat is equal to 1/24th part of the whole, meaning that pure gold is 24 carats. The carat system helps in understanding how much gold is present in an alloy compared to other metals. For instance, 18-carat gold consists of 18 parts gold and 6 parts other metals, making it 75% pure. The carat value influences the gold's colour, durability, and price. Higher-carat gold, such as 22 or 24 carats, is more valuable but softer and prone to scratches. Lower-carat gold, like 14 or 18 carats, is more durable due to the presence of alloying metals. Carat measurements are crucial for buyers and sellers to assess the quality and worth of gold jewellery and other gold items.

What is a carat in gemstones?

In gemstones, a carat is a unit of weight used to measure the size of a gem. One carat is equivalent to 200 milligrams or 0.2 grams. The term "carat" originates from the carob seed, historically used by gem traders as a reference for weight due to its consistent size. Gemstone carat weight significantly influences a gem's value, as larger gemstones are rarer and thus more expensive. However, carat weight is not the only factor in determining a gemstone's value; cut, colour, and clarity also play essential roles. For example, two diamonds of the same carat weight can have vastly different values based on their clarity and colour. When buying or selling gemstones, understanding the carat system is vital to accurately appraise the worth of the gems. 
 

Difference between karat vs carat

In local conversations, the terms karat and carat are often used interchangeably and generally understood by context. However, each has a specific technical meaning. Karat is used only for gold and indicates its purity. For example, 24 karat gold is considered pure, while 22 karat and 18 karat gold contain other metals for added strength.

Carat, on the other hand, is used for gemstones such as diamonds and refers to weight. One carat equals 200 milligrams and plays a key role in determining a gemstone’s value. Although casually used together, both terms represent different measurements.

Using carat gold as collateral for loans

Using carat gold as collateral for loans is a common practice in India, providing a quick and secure way to access funds. When gold is pledged, its carat value, which indicates the purity, is assessed to determine its worth. Higher carat gold, such as 22 or 24 carats, typically secures higher loan amounts due to its higher purity and value. Financial institutions evaluate the gold's carat and weight to estimate its market value and offer a loan based on a percentage of this value. Bajaj Finance offers up to 75% of your gold’s value as loan, as per the guidelines set by the RBI. Using 18-22 carat gold as collateral is advantageous because it offers lower gold loan interest rates compared to unsecured loans. Borrowers retain ownership of their gold and can retrieve it upon full repayment, making it a favourable option for those in need of quick funds without selling their valuable assets.

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Valuation of carat gemstones in gold loans

Valuation of carat gemstones in gold loans involves assessing the gemstones' weight, quality, and market demand. While gold serves as the primary collateral in such loans, gemstones embedded in gold jewellery can enhance the overall value of the pledged items. Lenders evaluate the carat weight of the gemstones, with higher carat values indicating larger and potentially more valuable gems. Additionally, factors like cut, colour, and clarity are considered to determine the gemstones' worth. Although the primary focus remains on the gold's carat value, high-quality gemstones can increase the loan amount offered. It's essential for borrowers to ensure their gemstones are appraised accurately to receive a fair valuation.

Understanding how gemstones contribute to the overall collateral value can help borrowers maximise their gold loan amounts.