Gold loans have become a very popular option for anyone seeking quick access to funds in India. With quick loan approval and minimal documentation, a gold loan at home is an affordable and flexible borrowing option that secures gold jewelry as collateral. Financial institutions or loan providers evaluate the loan amount based on the value of the gold ratio, which is called the loan-to-value ratio, to ensure responsible and disciplined lending practices.
The LTV ratio is the percentage of your gold’s market value that the lender is willing to lend. Please continue reading to understand the loan-to-value ratio and how it is calculated before you apply gold loan online.
Understanding Loan-To-Value Ratio
The LTV ratio in a gold loan is a major metric used by financial institutions and non-banking financial companies to examine the loan amount that can be offered against gold. It represents the percentage of the complete appraised market value of the gold offered by the borrower that the non-banking financial institution is willing to advance as a loan amount.
For instance, a borrower is willing to pledge gold to apply for small business loan. If any non-banking financial company offers gold loans at a loan-to-value ratio between 60% and 75%, and the value of the gold jewelry provided by the borrower falls between Rs. 80,000 and 1 lakh, the maximum amount of loan provided to the borrower would be between Rs. 75,000 and 1 lakh.
How Is The Ltv Ratio Calculated For A Gold Loan?
The major benefit of the loan-to-value ratio for any financial institution, such as a bank or NBFC, is that it avoids excessive risk exposure and overlending. This ratio in gold loans ensures that the NBFCs only use a prudent and reasonable percentage of the market value of the pledged gold. It is important to learn how the LTV ratio affects the amount in a gold loan.
To calculate the LTV ratio of your gold loan:
- Monitor the market value of your pledged gold.
- Consider the amount of loan you require.
- Apply the formula to calculate the LTV ratio, which is:
LTV ratio = Loan amount/value of gold x 100
For example:
Assume the market value of the gold pledged by the borrower is Rs. 1 lakh, and the borrower needs a loan of Rs. 60,000. By leveraging the formula given above:
LTV ratio = 60,000/ 1,00,000 x 100
= 60%
Factors Affecting The Ltv Ratio
As a borrower, before applying for a gold loan on an urgent loan app, you must remember that the LTV ratio can be different according to different lenders. Make sure to understand the standard LTV restriction, which is 75% throughout the loan repayment period.
Conclusion:
For any msme business loan or gold loan applicant, it is important to understand the role of the LTV ratio in the process. Moreover, borrowers must also learn how to calculate the loan-to-value ratio to acknowledge the amount of the loan they can receive in return for the gold assets they keep as collateral.