Bajaj Finance outlines what borrowers should know before taking a gold loan

Bajaj Finance is flagging the key mechanics of gold loans, including interest rates, gold valuation, loan-to-value limits and repayment options, for borrowers considering pledging jewellery or coins. The guidance matters because the amount a customer can borrow and the total cost of the loan depend on factors beyond the gold’s market price.

Why it matters: - Gold loans let borrowers unlock cash without selling gold, but the borrowing cost and eligible loan amount can differ sharply. - The loan amount depends on how the gold is valued, while the interest rate determines the cost of borrowing. - Understanding both can help borrowers avoid taking more debt than they need.

What happened: - Bajaj Finance published a guide on the factors borrowers should check before taking a gold loan. - The lender said its gold loan interest rate ranges from 9.50% to 24.25% per annum. - The applicable rate depends on the loan amount, tenure and repayment option. - Bajaj Finance offers gold loans from Rs. 5,000 to Rs. 2 crore, subject to eligibility and applicable terms.

The details: - Gold prices and gold loan interest rates are not the same thing. - Changes in gold prices can affect the value of pledged gold and the loan amount a borrower may qualify for. - The interest rate depends on the loan terms and the lender’s pricing policy. - A rise in gold prices does not automatically mean a higher gold loan interest rate. - Bajaj Finance values gold using the lower of the previous day’s closing price or the 30-day average closing price for the relevant purity. - The price reference comes from the Indian Bullion and Jewellers Association or a SEBI-regulated commodity exchange. - During valuation, only eligible gold content counts. - Stones, gems and other embellishments are excluded. - Purity and net gold content also affect eligibility. - Jewellery and ornaments between 18K and 22K purity may be eligible. - Gold coins up to 24K purity may be eligible, subject to applicable terms. - The Loan-to-Value limit determines how much of the eligible gold value can be borrowed. - For loans up to Rs. 2.5 lakh, the maximum LTV is up to 85%. - For loans above Rs. 2.5 lakh up to Rs. 5 lakh, the maximum LTV is up to 80%. - For loans above Rs. 5 lakh up to Rs. 2 crore, the maximum LTV is up to 75%. - If eligible gold is valued at Rs. 2 lakh, an 85% LTV would allow a maximum loan of Rs. 1.7 lakh, subject to applicable terms and eligibility criteria. - Borrowers can choose between bullet repayment and regular repayment. - Under bullet repayment, the loan amount and interest are paid together at the end of the loan period. - Under regular repayment, interest is paid every six months and the loan amount is paid at the end.

Between the lines: - The guide is aimed at borrowers who may focus on gold’s market price but overlook how lenders actually calculate loan value and cost. - Bajaj Finance is emphasizing transparency in valuation, including assessment of purity and weight in the customer’s presence. - The message also pushes borrowers to match the loan size and repayment schedule to actual cash needs rather than borrowing the maximum available.

What’s next: - Borrowers considering a gold loan should compare the interest rate, tenure, repayment structure and other charges before accepting terms. - They should also check the applicable LTV limit and make sure the repayment schedule fits their finances. - Bajaj Finance says a clear understanding of these factors can help customers make a more informed decision before pledging gold.

The bottom line: - Gold loan decisions hinge on more than the value of the jewellery. Rate, valuation method, LTV and repayment structure all shape how much cash a borrower gets and what it will cost.