The Reserve Bank of India (RBI) has increased the loan-to-value (LTV) ratio for gold loans, effective April 1, 2026. The new limits are:
- Up to Rs 2.5 lakh: LTV raised to 85%
- Rs 2.5 lakh to Rs 5 lakh: LTV increased to 80%
- Above Rs 5 lakh: LTV remains at 75%
This move aims to enhance liquidity for borrowers but requires careful consideration to avoid financial risks.
What is LTV?
LTV represents the percentage of your gold’s market value that lenders offer as a loan. For example, if your gold is worth Rs 1,00,000, you can now borrow up to Rs 85,000 instead of Rs 75,000 earlier. While higher LTV means more borrowing power, it also raises the risk of loan defaults and forced auctions if gold prices drop or repayments are missed.
Borrow According to Your Needs
Just because you qualify for a higher loan amount doesn’t mean you should borrow more than necessary. For instance, if you need Rs 50,000 for urgent expenses, avoid borrowing Rs 68,000 simply because the limit allows it. Over-borrowing increases interest costs and repayment burdens.
Assess Your Repayment Capacity
Gold loans typically have tenures up to 36 months. A higher loan means larger EMIs if repaid in instalments. For example, a Rs 85,000 loan over 12 months at 11% interest results in about Rs 9,350 interest. Missing payments can lead to penalties, rollovers, or auctioning of your gold. Use EMI calculators and ensure your income can comfortably cover repayments.
Think Long-Term and Protect Sentimental Assets
For valuable or sentimental jewellery, avoid borrowing the maximum LTV. Pledging Rs 5 lakh worth of gold and borrowing Rs 4 lakh (80%) can be risky if unexpected income disruptions occur. Consider borrowing only 60-65% to create a financial buffer.
Have a Clear Exit Strategy
Gold loans are best suited for short-term financial needs with a repayment plan in place. Whether through bonuses, asset sales, or savings, ensure you can repay on time. For example, a Rs 2 lakh loan at 12% interest for six months will require Rs 2.12 lakh at maturity. Missed payments may trigger rollovers, penalties, or auctions.
