Securing a loan against valuable assets is a common way to access quick funds in India. Gold is the most popular collateral due to its liquidity and stable value, while platinum’s limited demand and price volatility make it less accessible. Understanding the differences between these metals, including factors like market price, purity, and lender acceptance, help you make informed choices.
Why Gold is Often the Preferred Collateral for Loans
Gold is a widely accepted form of collateral due to its universal demand, historical stability, and ease of valuation. Here’s why gold is so attractive for lenders:
- Global Liquidity: Gold is universally recognised and liquid, meaning it can easily be sold or traded in case the borrower defaults. This makes it less risky for lenders.
- Market Stability: Over time, gold has proven to be a stable asset, with relatively consistent value, even when economic conditions fluctuate. Its price, while influenced by market conditions, tends to rise steadily in the long run.
- Easier Valuation: Gold’s purity and weight can be easily determined using standardised tools, making the loan disbursement process faster.
The Bajaj Finserv Gold Loan apply procedure typically involves assessing the gold’s weight and purity (measured in karats), along with the current market price, such as the gold rate in Varanasi, to determine the loan amount.
The Value of Platinum as Collateral
Platinum can be used as collateral in certain regions, but it is far less commonly accepted than gold. Key points to consider include:
- Lower liquidity: Although platinum is usually high in purity, it is not as easily converted into cash as gold, which makes lenders more cautious.
- Higher price volatility: Platinum prices tend to fluctuate more than gold, leading to less predictable loan values.
- Limited lender acceptance: Fewer financial institutions accept platinum as collateral due to lower market demand and resale certainty.
Because of these factors, platinum does not offer the same level of acceptance or stability as gold for secured loans.
Gold Loans vs Platinum Loans: Which is More Accessible?
Gold loans are widely available across banks and NBFCs, with standardised testing for purity and weight, which keeps approval timelines short and procedures predictable. Loan terms are usually clearer because gold prices are tracked daily and are easier for lenders to benchmark.
Platinum loans, on the other hand, are offered by far fewer lenders, often require specialised valuation, and may involve stricter conditions due to thinner resale markets. This limited acceptance and added processing make platinum loans less accessible in practice, even though the metal itself is valuable.
The Impact of Gold and Platinum Prices on Loan Amount
The value of gold and platinum fluctuates based on market conditions, with the gold rate in Varanasi, for example, changing daily due to demand and global economic trends. Lenders use the Loan-to-Value (LTV) ratio, the percentage of the asset’s value available for borrowing, to determine loan amounts amid these shifts. Higher metal prices boost collateral worth, enabling larger loans, while drops reduce eligibility.
Key Impacts:
- Rising Prices: Increase the appraised value of pledged gold or platinum, allowing borrowers to secure higher amounts under fixed LTV ratios without needing extra collateral—for instance, at a gold rate in Varanasi of ₹5,000 per gram for 100g of 22-karat gold (₹500,000 total value), a 75% LTV yields up to ₹375,000.
- Falling Prices: Shrink collateral value, cutting maximum loan size and often prompting margin calls or added assets to meet LTV standards, protecting lenders from losses.
- Gold Dominance: Preferred for its liquidity, standardised purity, and RBI-supported LTVs up to 85%, making it accessible across Indian fintech platforms.
- Platinum Limitations: Offers higher per-gram prices but faces volatility, lower LTVs (around 70%), and rare acceptance, yielding smaller loans relative to gold despite base value.
- Platinum Loan Calculation: Though pricier per gram, its volatility typically results in lower LTVs and loan amounts compared to gold. Align borrowing with favourable gold rates in Varanasi or similar markets to optimise funds compliantly.
Loan Tenure and Interest Rates for Gold and Platinum Loans
Gold loans typically feature flexible tenures and competitive rates, while platinum loans remain niche with stricter terms due to limited acceptance. Lenders structure repayments via EMIs, influenced by RBI norms favouring longer tenures over bullet payments for better risk management.
Gold Loans
- Tenure: Ranges from 3-36 months, commonly 6-12 months to balance quick access and repayment ease.
- Interest Rates: Generally 8%-24% p.a., lower at banks for high-purity collateral and longer terms.
- Key Factors: EMI options reduce burden; processing fees apply alongside GST.
Platinum Loans
- Tenure: Shorter at 6-12 months, reflecting volatility and resale challenges.
- Interest Rates: Higher, often 15%-25% p.a., due to rarity and conservative lending.
- Availability: Restricted to select providers with added scrutiny.
Conclusion
Understanding the differences between gold and platinum as collateral clarifies how loan amounts and terms are determined. Gold provides more predictable valuation and wider acceptance, while platinum’s volatility and limited market presence make its use less straightforward. Awareness of these factors, along with changing metal prices, highlights how the choice of collateral affects borrowing potential.