The amount you can borrow against eligible gold and the cost of that borrowing depend on different factors, including gold value, LTV, interest rate and repayment terms.
When considering a gold loan, two questions matter: how much can you borrow against your gold, and how much will that borrowing cost? While both are important, they are determined by different factors.
The potential loan amount depends on the assessed value of your eligible gold, which is influenced by its purity, net weight, applicable gold value and loan-to-value (LTV) limit.
The cost of borrowing is a separate consideration. Your applicable interest rate, loan amount, tenure and repayment option can affect the interest payable over the loan period. Understanding these two aspects separately can help you assess both your potential borrowing capacity and the cost of the loan.
How does the gold price affect your potential loan amount?
The gold rate in Uttar Pradesh or any other state can influence the assessed value of eligible gold and, in turn, the potential loan amount. If your gold weight and purity remain unchanged, a change in the applicable value can change the assessed value.
A simplified calculation is:
Assessed gold value = eligible net gold weight × applicable gold value per gram.
For example, with 20 g of eligible gold:
| Applicable gold value per gram | Assessed gold value |
| Rs. 6,500 | Rs. 1,30,000 |
| Rs. 7,000 | Rs. 1,40,000 |
The assessed value increases by Rs. 10,000 when the applicable gold value rises from Rs. 6,500 to Rs. 7,000 per gram. However, this does not mean you can borrow the full increase because the applicable LTV still limits the amount considered for the loan.
The value used for assessment may also differ from the retail market rate because the lender follows its applicable valuation methodology.
How does the assessed gold value determine your loan amount?
The potential loan amount is calculated after applying the applicable LTV to the assessed gold value.
Potential loan amount = assessed gold value × applicable LTV
For example, if your assessed gold value is Rs. 2,00,000 and an 85% LTV applies:
Rs. 2,00,000 × 85% = Rs. 1,70,000
If the assessed value increases to Rs. 2,20,000 and the same LTV applies:
Rs. 2,20,000 × 85% = Rs. 1,87,000
The potential loan amount increases because the assessed gold value has increased while the applicable LTV remains unchanged.
For relevant consumption loans, Bajaj Finance currently states maximum LTV limits of up to 85% for loans up to Rs. 2.5 lakh, up to 80% for loans above Rs. 2.5 lakh and up to Rs. 5 lakh, and up to 75% for loans above Rs. 5 lakh and up to Rs. 2 crore. The applicable LTV depends on the relevant loan amount, purpose and terms.
What else determines the amount you may be able to borrow?
The gold price is only one part of the assessment. Other factors can affect the value considered for the loan.
1. Gold purity
Your gold’s purity affects its applicable value. Bajaj Finance accepts 18K to 22K jewellery and ornaments, while eligible gold coins can be accepted up to 24K, subject to applicable terms.
2. Eligible net gold weight
Assessment considers eligible gold content. Stones, gems and other non-gold components do not form part of the intrinsic gold value.
3. Applicable valuation method
The assessment value may differ from the retail market rate. Bajaj Finance considers the lower of the previous day’s closing price or the 30-day average closing price published by IBJA or a SEBI-regulated commodity exchange for the relevant purity, subject to applicable terms.
Together, these factors help determine the assessed gold value before the applicable LTV is used to estimate the potential loan amount.
What determines your gold loan interest rate?
Your gold loan interest rate is separate from the gold value used to determine your potential loan amount. Bajaj Finance currently lists interest rates from 9.50% to 24.25% per annum. The applicable rate can be influenced by factors such as the loan amount, LTV, repayment tenure, gold purity and applicable lender policies.
The gold price mainly affects the value of your eligible gold and the potential amount you may be able to borrow. It does not by itself determine the interest rate. The applicable rate is based on the lender’s pricing and other relevant terms.
How does the interest rate affect your borrowing cost?
The interest rate determines the interest payable on the amount you borrow. A simple way to estimate the interest is:
Interest = loan amount × interest rate × tenure
For example, if you borrow Rs. 1,00,000 at 12% per annum for six months:
Rs. 1,00,000 × 12% × 6/12 = Rs. 6,000
Your actual interest payable depends on the applicable rate, tenure and repayment terms.
Bajaj Finance Gold Loan offers multiple interest repayment frequencies, including monthly, bi-monthly, quarterly, half-yearly and annually. This flexibility allows borrowers to select a repayment schedule based on their income patterns and financial commitments.
For instance, salaried borrowers may prefer monthly interest payments, while those with seasonal income may consider less frequent payments. The principal and any pending interest remain payable according to the selected repayment structure.
The right repayment frequency can make interest payments easier to manage, but borrowers should also consider the total interest payable before selecting an option.
How do loan amount and interest rate work together?
The potential loan amount tells you how much you may be able to borrow, while the interest rate helps determine the cost of borrowing that amount.
For example, if your assessed gold value supports a potential loan of Rs. 1,00,000 and the applicable interest rate is 12% per annum for six months, the simple interest would be Rs. 6,000.
If the loan amount, applicable rate or tenure changes, the interest payable can also change. This is why assessing the loan amount and borrowing cost separately can give you a clearer picture of the overall obligation.
How can you estimate your potential loan amount?
You can use a simple three-stage approach:
- Identify your eligible gold: Note its purity and eligible net weight.
- Estimate the assessed value: Apply the applicable gold value per gram to the eligible weight.
- Apply the LTV: Multiply the assessed value by the applicable LTV to estimate the potential loan amount.
This gives you a starting estimate rather than a confirmed sanction amount. The final amount depends on the lender’s assessment and applicable terms.
What should you check before borrowing?
For the potential loan amount
- Purity and eligible net weight of your gold
- Applicable gold value and valuation methodology
- LTV applicable to the expected loan amount
- Final eligibility and applicable terms
For borrowing cost
- Applicable interest rate
- Loan tenure
- Repayment option
- Processing fee, stamp duty and other applicable charges
Considering both sets of factors can help you understand how much you may be able to borrow and what that borrowing may cost.
The potential gold loan amount is primarily linked to the assessed value of your eligible gold and the applicable LTV. Gold price, purity, eligible net weight and the valuation methodology can therefore affect how much you may be able to borrow.
The interest rate is a separate consideration that affects the cost of borrowing. Loan amount, tenure, repayment option and applicable lender terms can influence the interest payable. Looking at both the potential loan amount and borrowing cost can help you plan your gold loan more accurately.
With Bajaj Finance Gold Loan, borrowers can assess their eligible loan amount and explore interest repayment options that suit their financial needs. However, a higher borrowing limit does not necessarily mean you should borrow more. The right decision is to choose an amount that meets your needs without stretching your repayment capacity.
Terms and conditions apply.
