How does the change in gold prices affect your gold loan?

5 MinsJuly 25, 2022

When in need of money – for whatever reasons – availing of a loan is an easy way of getting funds. And if you own gold, you could simply avail of a loan against it. You don’t require to sell your gold or utilise savings and investments perhaps assigned for the envisioned financial goals

How does the change in gold prices affect your gold loan?

The gold loan process is fairly simple. The benefits include:

  • Fast disbursement 
  • Competitive interest rates 
  • Attractive loan-to-value ratio (you can borrow up to 75% of the value of your loan and its purity in caratage), 
  • Low valuation fee 
  • Minimal processing fee 
  • Option to choose your repayment tenure (from 6 months to 36 months), plus part prepayments are permitted without any charges.
  • Good credit history and credit score are not critical for loan approval since it is a secured loan

Typically, you can borrow against gold jewellery (viz., necklace, chain, mangalsutra, bangles, rings, etc.) or gold coins. The value of these items and their cartage determines your gold loan eligibility. Your gold is safely kept in a bank vault, in a tamper-proof box, and a security certificate is issued (3x security).

[Also ReadBorrow funds easily against your gold]

That being the case, are you aware that the fluctuation in gold prices affects your gold loan?

  • When the price of gold appreciates, the ability to borrow increases. You can get a higher loan amount for the same quantity of gold
  • On the other hand, when the gold prices are muted or fall, you may not get a high loan amount. Banks usually track the price of standard gold over some time, judging the averaging price movement. 
  • If the gold price falls, the bank may ask you to pay the margin money (or pledge more gold) as the value of the gold pledged for the loan has fallen. 
  • Also, the quantum of the gold loan outstanding is assessed (considering the loan-to-value) and the number of days the payment is due before raising the margin call (or further pledge request).
  • This is because, due to the decline in the price of gold, the loan-to-value changes; crosses the cap of 75% LTV. In such a case, you are then enjoying a higher loan value as against the loan pledged, which does not work in favour of the lender. For the bank or any lender, risk management is a critical function. 

Axis Bank proactively reminds customers of their dues and advises them to keep adequate funds available to avoid additional costs. Yet, if you miss making timely repayment, late payment charges will be applicable according to the terms of your Loan Against Gold agreement. 

If the loan amount outstanding is high and the repayment hasn’t been done for a while, the lender may even demand partly repaying the gold loan.

Keep in mind that if the default goes up to 90 days (365 days in case of agri gold loans), the lender holds the right to exercise the option of liquidating the loan pledged. Thus, to avoid the risk of losing your gold, make it a point to repay your gold on time.

Also, use the Gold Loan calculator. All you have to do is simply key in the form of gold you have (ornaments and coins), its weight, and caratage on the online calculator, and it will display the amount of Gold Loan you are eligible for against the gold you wish to pledge.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision