How Gold Purity Impacts your Gold Loan per Gram

If you are looking to take a secured loan - gold loans are super popular and accessible in India. With gold loans, you can pledge your gold ornaments as collateral to get funds for your needs. In the previous blogs, we have seen how you can use the gold loan calculator to determine the loan amount and how loan tenure plays a crucial role in determining the gold loan interest rate. In this article, we look at how gold purity helps determine gold loan per gram.

What is gold purity?

The gold purity is measured in karats and denoted with 'K' - with 24K being the purest gold form, which is 99.9% gold content. The basics of gold purity is this - the higher the gold purity, the softer or fragile the gold ornament made out of it. For this reason, gold is often alloyed with other metals to improve its strength and durability. Based on the purity level, the classification is here:

• 24 Karat (24K): 99.9% pure gold, rarely used in jewelry.
• 22 Karat (22K): 91.6% pure gold, commonly used in high-quality jewelry.
• 18 Karat (18K): 75% pure gold, often used in jewelry with intricate designs.
• 14 Karat (14K): 58.3% pure gold, used in less expensive jewelry.

Gold Loan and Gold Purity

The higher the gold karets, the higher its market value. Consequently, the loan amount per gram you can get on it is higher. Here is how it works with the core being - Higher Purity Equals Higher Value

24K Gold: As the purest form, 24K gold commands the highest market price per gram. Therefore, gold loans against 24K gold will offer the highest loan amount per gram.

22K Gold: With slightly less purity, 22K gold has a lower market value compared to 24K gold, resulting in a slightly lower loan amount per gram.

18K and 14K Gold: These purities contain a significant percentage of other metals, reducing their market value and the corresponding loan amount per gram.

Understanding with an Example

As discussed in the previous blog, the loan amount is also determined by the loan-to-value (LTV) ratio, which in most cases is 75%. Let us take an example of how the purity of gold impacts the loan amount. Here is the basic information about the ornament you hold:

• Gold Weight: 100 grams
• Current Market Price: Rs 7,500 per gram (for 24K gold)
• LTV Ratio: 75%

Now, depending on the gold purity, the loan amount will be calculated using the formula:

Loan Amount = Gold Value * LTV

For 24K:

• Loan Amount = (7500 * 100) * 0.75 = Rs 5,62,500

For 22K (91.6%):

• Gold price per gram: 7500 * 91.6% = Rs 6870
• Loan Amount = (6870 * 100) * 0.75 = Rs 5,15,250

The calculation for 18K will work on the same lines.

Key points while taking a gold loan

You need to put in some effort to get the best gold loan. You should take care of below while applying for a gold loan:

• Opt for High-Purity Gold: To maximize your loan amount, pledge gold with higher purity (22K or 24K) if possible.
• Understand Assaying: Be aware of the assaying process used by the lender and how it impacts the valuation of your gold.
• Compare Lenders: Different lenders might offer varying LTV ratios and interest rates. Comparing multiple lenders can help you secure the best deal.

Before you go

The equation is simple - if you need a higher loan amount, you need to have high purity ornament as the market value of it is higher. We hope that you now understand the impact of gold purity on the loan amount and will take steps to optimize the valuation process. Following the discussion, you can make the most of your gold assets and secure favorable loan terms.