How to Calculate Gold Loan Amount Based on Gold Purity & Weight

A Gold Loan is one of the simplest and fastest ways to access funds by pledging your gold ornaments. However, before applying, it is essential to understand how lenders determine the value of your gold and the exact amount you are eligible to borrow.

By learning how to calculate gold loan eligibility based on gold purity, weight, and market price, you can make an informed borrowing decision and ensure that you receive a fair valuation.

Understanding What Lenders Value

When you apply for a Gold Loan, the lender does not assess your jewellery based on design, brand, or sentiment. The valuation is purely technical and depends on the following parameters:

1. Purity of gold (karat or fineness)

2. Net weight of gold, excluding stones or other non-metal components
3. Current gold rate per gram, usually an average of recent market prices
4. Loan-to-Value (LTV) ratio, which defines the maximum percentage of the gold’s value you can borrow

The basic formula is:

Eligible Gold Loan Amount = (Net Weight × Purity Factor × Gold Rate per Gram) × LTV%

Gold Purity and Its Impact

Gold purity is basically the proportion of pure gold that exists in an ornament. It is measured in karats (K), where 24K is the purest form. The higher the karat, the greater the purity and, consequently, the higher the eligible loan value.

To convert karats to a usable decimal for calculations, divide by 24.

For instance, for 22K gold:

22 ÷ 24 = 0.9167, or 91.67% purity.

If your jewellery is BIS-hallmarked, lenders usually accept the indicated purity without additional testing. Non-hallmarked items are tested using machines such as XRF analyzers before valuation.

Step-by-Step Method to Calculate Your Gold Loan Amount

Step 1: Determine Gold Purity

Look for the hallmark symbol on your ornament to identify purity. In case it is not hallmarked, the lender will test it and assign a purity level.

Step 2: Measure Net Gold Weight

Your jewellery is weighed, and any stones, pearls, or non-gold components are excluded from the final weight. This ensures that only the gold portion is valued.

Step 3: Calculate Pure Gold Weight

Use the formula:

Pure Gold Weight = Net Gold Weight × Purity Factor

This step is meant to convert the ornament’s total weight into the equivalent weight of pure gold.

Step 4: Apply the Lender’s Gold Rate

Lenders use an internal per-gram rate, often derived from the recent average market price of 24K gold.

Gold Value = Pure Gold Weight × Rate per Gram

Step 5: Apply the Loan-to-Value (LTV) Ratio

The Reserve Bank of India (RBI) allows lenders to provide up to 75% of the gold’s value as a loan. Some NBFCs may offer slightly different limits depending on product design.

Eligible Gold Loan Amount = Gold Value × LTV%

Step 6: Final Adjustments

After calculation, lenders may round the amount and deduct nominal processing or valuation charges, which slightly impact the final disbursal.

For Example, let’s consider a 22K Gold Bangle

• Gross Weight: 50 g
• Stones and Fittings: 2 g
• Net Gold Weight: 48 g
• Purity: 22K (0.9167)
• Rate per gram: ₹6,800
• Pure Gold Weight: 48 × 0.9167 = 44.00 g
• Gold Value: 44 × ₹6,800 = ₹2,99,200
• LTV: 75%

Eligible Loan Amount: ₹2,99,200 × 0.75 = ₹2,24,400

Now let’s look at another example of an 18K Gold Necklace

• Net Weight: 30 g
• Purity: 18K (0.75)
• Rate per gram: ₹6,800
• Pure Gold Weight: 30 × 0.75 = 22.50 g
• Gold Value: 22.50 × ₹6,800 = ₹1,53,000
• LTV: 70%

Eligible Loan Amount: ₹1,53,000 × 0.70 = ₹1,07,100

Factors That Can Influence Your Loan Value

1. Gold Rate Source: Lenders typically use an average of recent gold prices rather than the daily market rate.
2. Purity Verification: Non-hallmarked items are tested and may be valued conservatively.
3. LTV Policy: Each lender sets its own LTV percentage based on internal risk policies.
4. Deductions for Stones or Alloy: Any non-gold material is excluded from valuation.
5. Rounding Off: Final amounts are often rounded to the nearest hundred or thousand for convenience.

Quick Calculation Formula

If you wish to estimate your loan value manually, use the following formula:

Gold Loan Amount = Net Weight (g) × Purity Factor × Rate per Gram × LTV

For example:

If you have a 40g, 22K ornament and your lender’s rate is ₹6,800 per gram:

= 40 × 0.9167 × 6,800 × 0.75 = ₹1,87,200 (approx.)

Tips to Maximize Your Gold Loan Eligibility

• Prefer hallmarked jewellery for faster purity verification and better value.
• Remove non-gold parts (stones or attachments) before valuation to save time.
• Compare lenders on interest rate, LTV, and per-gram rate before applying.
• Check repayment flexibility, including prepayment or foreclosure options.
• Maintain documentation (invoice or hallmark certificate) if available.

Conclusion

Understanding how to calculate gold loan eligibility empowers you to make informed financial decisions. By factoring in purity, net weight, current market price, and the applicable LTV ratio, you can accurately estimate the amount you can borrow before visiting a lender.

Whether you pledge jewellery or coins, remember that the Gold Loan process is transparent when you know the method behind the valuation. With this knowledge, you can confidently compare offers, negotiate better rates, and choose the lending option that best suits your financial requirements.

Disclaimer: The content above is presented for informational purposes as a paid advertisement. The Tribune does not take responsibility for the accuracy, validity, or reliability of the claims, offers, or information provided by the advertiser. Readers are advised to conduct their own independent research and exercise due diligence before making any decisions based on its contents and not go by mode and source of publication.