GOLD LOAN: HOW MUCH CAN YOU BORROW AND WHAT AFFECTS THE LOAN AMOUNT?

Gold is a valuable asset that can help you secure a loan in times of financial need. Many banks and NBFCs (Non-Banking Financial Companies) offer gold loans, making them easily accessible for urgent cash requirements. Unlike personal loans, which involve extensive documentation and credit checks, gold loans are secured by the gold itself, allowing for quicker access to funds.

The Reserve Bank of India (RBI) regulates gold loans to ensure fair lending practices. Lenders determine the loan amount based on the Loan-to-Value (LTV) ratio. As per RBI guidelines, banks and NBFCs can lend up to 75% of the gold’s market value. This means that if your gold is worth Rs 1 lakh, you can receive a loan of up to Rs 75,000. However, some lenders may offer lower amounts depending on their risk assessment policies.

Adhil Shetty, CEO of Bankbazaar.com, says, “The valuation of gold is based on the prevailing market price. Since gold prices fluctuate, the loan amount may vary accordingly. Borrowers should check the latest gold rates before applying for a loan to get the best possible value for their pledged gold.”

Also Read: Why your loan EMI has not dropped despite RBI’s rate cut

Factors Affecting Loan Amount

Several factors determine how much you can borrow against your gold. The primary factors include:

1. Gold Purity – Lenders accept gold with purity levels of 18 karats or more. Higher purity gold is valued more and qualifies for a higher loan amount.

2. Weight of Gold – Only the gold content is considered for valuation. Any stones, gems, or other attachments on jewellery are excluded.

3. Current Market Price – The loan amount depends on the prevailing gold rate, which changes daily. Higher gold prices mean higher loan eligibility.

4. Lender’s Policy – Some NBFCs offer better loan amounts by structuring their loan products differently. However, they must still adhere to the 75% LTV cap.

Interest Rates and Loan Tenure

Gold loan interest rates vary depending on the lender. Typically, banks offer lower interest rates, starting from 9-10% per annum, whereas NBFCs may charge rates as high as 28% per annum. The difference in rates is due to varying risk assessments and repayment structures offered by different lenders.

The loan tenure for gold loans usually ranges from a few months to three years. Shorter tenures often come with lower interest rates, while longer tenures provide more flexibility in repayment. Borrowers should consider their financial situation before choosing a loan tenure.

Repayment Options

Gold loan borrowers have multiple repayment options to choose from, making it a flexible borrowing option. These include:

Regular EMIs – Paying both interest and principal in fixed monthly instalments.

Interest-Only Payments – Paying only the interest each month and settling the principal at the end of the tenure.

Bullet Repayment – Repaying both the interest and principal in one lump sum at the end of the loan period.

Shetty says, “Each repayment method has its advantages. While EMI payments reduce the burden gradually, bullet repayment plans offer flexibility for those expecting a lump sum income in the future.”

Maximum Loan Amount

Most banks offer gold loans starting from as low as Rs 10,000, going up to Rs 1 crore for high-value customers. NBFCs often provide even higher loan amounts based on their risk evaluation models. Some lenders have special schemes for farmers, offering relaxed interest rates and repayment terms.

Gold loans provide an easy and quick financing option for those in need of urgent funds. The loan amount depends on factors such as gold purity, weight, and current market prices. With multiple repayment options and flexible tenure, gold loans are an attractive alternative to personal loans.

2025-03-04T11:26:43Z