Gold loans have always been popular across various cities in India, including in Pune. That is because most people today hold gold assets that can be used as collateral to borrow necessary funds in times of need.
People often take gold loans in Pune to host celebrations or manage sudden expenses, such as medical emergencies. These loans also help them set up or expand their businesses, since Pune is home to multiple small businesses.
However, the loan amount someone can borrow in any given situation varies as per the gold price. The gold price also affects other aspects of gold loans, which indirectly impact the borrower.
How Do Fluctuations in Gold Price Affect Gold Loans in Pune?
Influence The Borrowing Amount
The changing gold prices influence the amount of money that you will receive in exchange for your gold. When the gold prices are high, you can borrow a higher gold loan amount for the pledged quantity.
On the other hand, when the gold prices fall, you can borrow a lesser amount of money for the pledged quantity. This amount depends on the LTV, or Loan-to-Value Ratio.
LTV ratio refers to the maximum loan value threshold that the lender is willing to lend against. As per RBI regulations, the LTV percentages are 85%, 80% and 75%. These percentages refer to applications for loans of up to Rs 2.5 lakh, between Rs 2.5 and Rs 5 lakh, and Rs 5 lakh or more, respectively.
So, for instance, say the market price of your gold in Pune is Rs 2,00,000. Since this is within than the threshold amount of Rs 2.5 lakh, you can borrow up to 85% of it, or Rs 1,70,000. However, if gold prices drop before you borrow, the maximum amount you can borrow will drop further.
Affects Interest RateÂ
While the interest rate offered by your lender does not change daily with gold rates, it is affected by lenders’ risk perceptions. The percentage of the eligible loan amount you wish to borrow (in accordance with the LTV ratio) determines the lender’s potential risk.
For instance, when the gold prices are high and you borrow a smaller amount against your gold jewellery, the lender’s risk is lower, which can result in lower interest rates. However, if you borrow the maximum amount allowed by the LTV ratio, the lender’s risk is higher, which can result in higher interest rates.
Impact on Existing Gold LoansÂ
Fluctuating gold prices affect both new and existing gold loans in Pune. How an active loan changes depends entirely on whether market rates rise or fall. For instance, if we look at the previous example of your gold market price of Rs 2,00,000, where you borrowed the maximum against it (Rs 1,70,000).
When Gold Price IncreasesÂ
If the price of the gold you pledged to the bank increases by a certain amount, then borrowers become eligible for a top-up loan. The top-up loan is the additional amount you can borrow due to the increased gold price.
Some reputable lenders, such as Manappuram Finance, offer hassle-free top-up facilities for customers who already have an ongoing loan with them.
When Gold Price DropsÂ
Similarly, if the price of the pledged gold decreases by a certain amount, the lender would issue a margin maintenance call. The margin maintenance call would require you to pledge more gold to restore the value of your collateral.
Alternatively, you could be instructed to repay part of the loan to maintain the LTV ratio.
Liquidation RiskÂ
This scenario may not occur if you repay the gold loan amount successfully. However, if borrowers ignore multiple margin maintenance calls or are unable to repay the loan in full on time, the lender may liquidate the funds.
Lenders can also auction off the gold pledged by the borrower to recover the sum of the gold.
ConclusionÂ
Fluctuating gold prices affect gold loans in Pune in various ways, including the amount borrowed and the flexibility for top-ups. That is why staying up to date on current market prices always helps, as you can plan your next steps accordingly, such as the borrowing amount.
Furthermore, trusting a reputable NBFC like Manappuram Finance ensures you enjoy a seamless approval process with multiple schemes and secure storage of your gold.