What is Loan-to-Value Ratio and Why is it Important?

 

If you are in the market for a mortgage, you've probably heard the term "Loan-to-Value Ratio" (or "LTV"). But what is it, and why is it important? The Bajaj Loan-to-Value Ratio is a simple way to calculate the loan amount you can afford when taking out a Bajaj gold loan.

What is loan-to-value ratio?

The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The asset is usually a piece of property, such as a car or house, and the loan is the outstanding balance on the mortgage or loan used to purchase the property.

The ratio is based on the total value of your Bajaj loan divided by the current market value of your collateral.

Why is loan-to-value ratio important?

Loan-to-value ratio is crucial in determining the risk involved in a gold loan. It measures the loan amount against the security value and is expressed as a percentage. Therefore, a higher loan-to-value ratio signifies a greater risk to the lender, as there is a higher chance of the borrower defaulting on the loan.

In the case of the Bajaj gold loan, the maximum loan-to-value ratio is 75%. It means that the loan amount can be up to 75% of the value of the gold pledged as collateral. The remaining 25% must be borne by the borrower.

This Loan-to-value ratio is applicable for both fresh as well as resale gold. The purity of the gold pledged must be 18 carats or more. Bajaj Finserv also offers the facility to top up your existing gold loan at a lower interest rate.

Thus, it is essential to understand the loan-to-value ratio before availing of a gold loan, as it will give you a clear idea of the amount you can borrow, and the risks involved.

Read Also: What is the Process of Gold Loan Repayment