Gold Loan Value
How much a loan against gold is worth, from weight and purity.
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Formula
How the calculation works
A loan against gold is lent against the pure gold content, not the weight of the ornament. One bhori is 11.664 grams, and at 91.7% purity that is 10.696 grams of fine gold. The difference is not small: valuing the full 11.664 grams at the same price gives 99,144 against 90,915, about 9% more than the metal actually contains.
The purity figure is where the errors are largest, because karats and percentages are not the same scale. 22 karat is 91.7%, not 22%. Entering 22 as though it were a percentage leaves the fine weight at under a quarter of its true value, and the loan figure with it. This is the single most expensive mistake the tool exists to prevent.
The loan to value ratio is applied last, to the value of the pure metal. Lenders keep it below 100% because the price of gold moves and they need the pledged metal to cover the loan if they have to sell it. A 75% ratio on this example supports 68,186.
Common mistakes
- Entering karats as a percentage. 22 karat is 91.7%, and using 22 as a percentage understates the loan about fourfold.
- Valuing the ornament's full weight rather than its fine gold content.
- Confusing bhori and ana. An ana is a sixteenth of a bhori, so mixing them changes the valuation sixteenfold.
When to use it
- Use it to check a gold loan offer before pledging, and to see what the purity figure is doing to the valuation.
- It values the metal only. Making charges, sentiment and resale value are not in the calculation, and a lender will not pay for them either.
Worked example
One bhori (11.664g) at 91.7% purity and 8,500 a gram supports a loan of 68,186 at 75% of value.
Common questions
How do I express purity?
As a percentage, not in karats. 22 karat is 91.7% and 18 karat is 75%.
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