From Gold Valuation To Repayment Planning: What Borrowers Should Consider

When you check the gold price today, you are only looking at the starting point. Before you borrow, you also need to know how your gold’s value turns into a loan amount, and how that loan amount turns into your actual repayment. Understanding each step can help you avoid a repayment plan you had not fully considered.

Step one: How your gold turns into a value

Checking the gold price in Bihar today, or the prevailing gold rate in any other part of India, can give you a useful market reference. However, the value considered for a gold loan is calculated differently. A lender only counts the eligible gold content in your gold jewellery, ornaments or coins, not the stones, decorations or making charges.

• Stones, gems, and decorations are removed from the calculation
• Only the actual gold content is measured
• The applicable valuation rate is the lower of the previous day’s closing price or the 30-day average closing price for the relevant gold purity, as published by IBJA or a SEBI-regulated commodity exchange.

This is why two pieces of jewellery with the same gross weight may not receive the same valuation. A piece with higher purity and fewer non-gold elements can have a higher eligible gold weight than another ornament of similar size or total weight.

Step two: From assessed gold value to loan amount

Once your gold is valued, the applicable Loan-to-Value (LTV) limit determines the maximum amount you may borrow against that value:

• Loans up to Rs. 2.5 lakh: up to 85% LTV
• Loans above Rs. 2.5 lakh to Rs. 5 lakh: up to 80% LTV
• Loans above Rs. 5 lakh to Rs. 2 crore: up to 75% LTV

For example, if your gold is valued at Rs. 3 lakh and the applicable LTV is 80%, you could be eligible for up to Rs. 2.4 lakh. The final loan amount depends on the actual purity, net weight, applicable valuation and eligibility criteria.

Step three: Using a gold loan calculator before you decide

A gold loan calculator can help you compare different borrowing scenarios before you apply. You can use it to estimate your potential loan amount, interest and repayment obligations based on the details you enter.

• It can estimate how much you may be able to borrow based on your gold details
• It can help you understand the estimated interest and repayment obligations
• It can help you compare different loan amounts and tenures

The calculator gives you an estimate, not a final loan amount. Your actual eligibility is determined after your gold is physically assessed for purity, net weight and applicable valuation.

Step four: Choosing how you repay

Once you know your likely loan amount, you need to consider how you will repay it. The two repayment options differ in when you pay the interest and principal, so consider your expected cash flow before choosing a structure.

• Bullet repayment: You pay the principal and interest due at maturity
• Regular repayment: You pay interest at half-yearly intervals as per the repayment schedule, while the principal is paid at maturity

A gold loan calculator can help you compare different loan amounts and repayment scenarios before you choose your loan terms.

Step five: Planning what you need

Just because your gold can support a large loan does not mean you should borrow that much.

• Work out the exact amount you need, not the maximum available
• Use a gold loan calculator to test different loan amounts before applying
• Match your tenure and repayment structure to your expected cash flow
• Consider the total repayment obligation, not just the amount you can borrow

Your maximum eligibility and your actual borrowing need are two different numbers. Borrowing closer to what you genuinely need can make repayment easier to manage and reduce the total interest outgo compared with taking the maximum amount simply because it is available.

With Bajaj Finance, your gold is assessed for purity and weight as part of the valuation process. This helps determine its assessed value and the eligible loan amount based on the applicable valuation and LTV limit. Once the loan amount is determined, you can choose from multiple repayment options based on your cash flow. Bajaj Finance also allows part-prepayment or foreclosure without additional charges, subject to applicable terms, which can give you more flexibility if your repayment plans change during the loan tenure.

So, the next time you check the gold price in India today, do not stop there. Use a gold loan calculator to estimate your borrowing requirement, compare repayment scenarios and plan around the amount you need, rather than the maximum amount available.