A gold loan is normally a very short-to-medium term loan for customers, where the occupation ranges from two months to one years. So, a gold loan is not a long-term loan for customers.
The interest rates on gold loans for a customer up and down based on the morality of gold. The higher the morality of gold, the higher the amount that can be customers. Interest rates go up from 10% per year to 20% per year in the public market , whereas in the private sector these interest rates for a customer are as high as 29% per year.
Loan to value ratio (LTV)
As per RBI’s guidelines, loan institutions can give a maximum of 92% of the value of jewellery as loan, indirectly minimum 8% as haircut. Mostly, the actual loan to value ratio differs from 50% to 65%, that means around a 33% to 43% margin for the institution, making it the secure loans for banks.
Loan to value ratio amount for a customer will get against the main value of gold. For eg, if the value of gold is INR 10,000 and the LTV is 60%, then the maxi. The loan amount for the customer can be INR 6,000.