How Changes in Gold Prices affect Gold Loans

How Changes in Gold Prices affect Gold Loans
Published: Feb 06, 2023

No matter how foolproof one’s financial planning is, there can be some situations when some kind of financial aid is required. And, availing a loan is one of the easiest ways to meet those urgent fund requirements. However, there is a widespread misconception that taking a loan is not good for your finances. The truth is that a loan can help you get over a temporary financial crisis with ease, only if those funds are used appropriately. In today’s time, there are several different types of loans available, with gold loans being the most viable of them. This is a type of secured loan that you can avail for several purposes, such as business expansion, educational expenses, travel, or something else.

However, borrowing money by pledging some gold ornaments is not a new concept in India. It is, in fact, an age-old practice that is still considered one of the easiest options to get over a cash crunch. The only difference is that now registered financial entities have replaced traditional moneylenders, and the process is more organised. In India, there are a number of banks and NBFCs that offer gold loans at lucrative interest rates.
Be it quick loan disbursal or a lower interest rate, gold loans are slowly becoming one of the most preferred financing options. Here are a few reasons why a sharp rise has been observed in the overall demand for gold loans:

●Easy Availability
●Quick Loan Disbursal
●Lower Interest Rates
●No External Collateral
●No End-usage Restrictions
●Minimal Documentation
●Flexible Eligibility Criteria

Now that you know how availing a gold loan to arrange funds can prove to be a smart move, let’s talk about how the market rate of gold affects gold loans:

The Relation between Gold Prices and Demand for Gold Loans:

There is no denying the fact that the demand for gold loans depends heavily on the market price of this precious metal. When you apply for a gold loan, the loan amount that can be sanctioned is decided by taking certain factors into consideration, such as the weight of the ornament, gold purity, and the current market rate of gold. The fluctuations in the market rate of the metal play an important role in calculating the baseline value of the gold loan amount. The LTV (loan-to-value) ratio is the specific percentage of your gold’s value that you can obtain as a loan. Whenever there is a fluctuation in the gold rate, the LTV ratios of gold loans also get affected.

In the simplest words, when the market rate of gold increases, the loan amount that you can avail against a certain quantity of gold also increases. Similarly, if the market price of gold decreases, the loan amount that can be availed by pledging the same quantity of gold also decreases.
Are you also looking for an option to avail a hassle-free gold loan? If yes, your search ends here. Capri Loans, one of the top financing companies in India, offers gold loans at the most competitive interest rates. With flexible eligibility criteria and minimal documentation, the loan disbursal does not take more than a few hours.