Gold Loan Rules Changed! Here’s What The New LTV Means For You

LTV is the proportion of the gold’s market value that lenders are willing to offer as a loan. While this increases the loan amount you can access, it also raises the risk.

Gold loans typically have a tenure of up to 36 months. Higher LTV means higher EMIs if you opt for instalments.

Source : ABPLIVE AI

The Reserve Bank of India (RBI) has revised the loan-to-value (LTV) ratio for gold loans. For loans up to Rs 2.5 lakh, the LTV has been raised to 85 per cent. For loans between Rs 2.5 lakh and Rs 5 lakh, it has been increased to 80 per cent. For amounts above Rs 5 lakh, the existing cap of 75 per cent remains unchanged. These changes take effect from April 1, 2026.

While the move enhances liquidity, it is important to borrow based on your actual need, repayment capacity, and the cost of credit. Here’s how to make an informed decision:

Understand what LTV means 

LTV is the proportion of the gold’s market value that lenders are willing to offer as a loan. For example, if your gold is worth Rs 1,00,000, you can now borrow up to Rs 85,000 under the revised limit, which would have been Rs 75,000 earlier. While this increases the loan amount you can access, it also raises the risk. A fall in gold prices or a missed repayment can trigger a forced auction. If gold prices fall by 10 per cent, your Rs 85,000 loan may exceed the gold’s new value.

Borrow based on need

Just because you’re eligible for a higher loan doesn’t mean you should take it. Suppose you need Rs 50,000 for medical expenses and your gold is worth Rs 80,000. Though you’re eligible to borrow up to Rs 68,000 (85 per cent), borrowing more than you need means paying interest on the excess. Over-borrowing increases the repayment burden and risk of default.

Know your repayment capacity

Gold loans typically have a tenure of up to 36 months. Higher LTV means higher EMIs if you opt for instalments. For instance, borrowing Rs 85,000 for 12 months at 11 per cent interest will cost you about Rs 9,350 in interest alone. If you miss payments, the loan may be rolled over with added charges, or your gold may be auctioned. Always use a gold loan EMI calculator and ensure your income can support the repayment.

Think long-term

Borrowing the maximum value against high-value or sentimental jewellery can be risky. If you pledge gold worth Rs 5 lakh and borrow Rs 4 lakh (80 per cent LTV), any disruption in income, such as a job loss, could lead to default. To safeguard assets of emotional value, create a buffer by borrowing only 60–65 per cent of the value. 

Have an exit strategy

Gold loans are best suited for short-term needs and must be backed by a clear repayment plan. Will you repay through a bonus, asset sale, or savings? For example, if you take a Rs 2 lakh loan at 12 per cent for 6 months, you’ll owe Rs 2.12 lakh on maturity. If you miss this, you risk rollovers, penalties, and auction.

The RBI’s move aims to support those in urgent need of funds. But use this facility wisely. Borrow less than what you’re eligible for, repay on time, and always plan your exit before you enter.

(The author is the CEO at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)