When borrowing against their gold ornaments, most people only think about how much gold they have. But there’s another factor that matters just as much, and that is how much the gold is worth today.
Why It Matters?
Gold loans are fast and easily accessible, but they’re also impacted by market changes.
Gold rates in India shift constantly due to global demand, currency fluctuations, inflation and even festive demand. And since your loan depends entirely on the value of your pledged gold, market changes affect how much you can borrow.
When you apply for a gold loan, lenders evaluate 3 things: the purity and weight of your gold, as well as the current per-gram market rate. These together determine your gold’s value on that particular date. The loan amount is then calculated based on the Loan-to-Value (LTV) ratio, which is the percentage of the gold’s value you can borrow.
As per the RBI framework, the LTV limits on a gold loan are:
- For gold loans up to INR 2.5 lakh, lenders can lend up to 85% of the value of gold.
- Between Rs. 2.5 lakh and Rs. 5 lakh, a maximum LTV of 80% is eligible
- Above Rs. 5 lakh, the maximum LTV ratio of 75% is applicable
While the LTV stays fixed, the amount you can borrow is calculated on the gold rate of the day you apply.
What Happens When the Rates Change?
A rise in gold prices works in your favour. Since the market value of gold is higher, you qualify for a higher loan amount. On the other hand, when gold prices fall, the value of your pledged gold decreases too, reducing the amount you can borrow.
Changes in gold prices are common, but that should not stop you from borrowing. You can plan wisely by checking the gold rates and timing your application when rates are stable or rising, as timing makes a huge difference.
