How gold loans work, the RBI's 75% LTV cap, and choosing between bullet and EMI repayment.
By Hannav Editorial
Updated 2 Aug 2026
5 Min Read
Gold loans are a popular, collateral-based borrowing option that allows individuals to tap into the value of their gold jewellery without selling it. In the current financial landscape, the Reserve Bank of India (RBI) has tightened the loan-to-value (LTV) cap to 75% of the gold's market value, making it essential for borrowers to understand how the loan amount is calculated, how interest is reset, and which repayment structure suits their cash flow. This guide provides a comprehensive overview of gold loans in India, covering the key features, RBI's guidelines, and repayment options.
1. What is a gold loan and how does it work in India?
A gold loan is a secured loan where the borrower offers gold jewellery or bullion as collateral. The lender evaluates the gold's purity and weight, applies the LTV cap, and disburses a cash amount. Key points:
Feature
Details
Collateral
Gold jewellery (rings, necklaces, etc.) or gold bars (usually 22 K or 24 K).
LTV
75% of the current market value of the gold (RBI-mandated).
Tenure
1 month to 5 years, depending on the lender.
Interest
Fixed or floating (linked to RBI repo or bank MCLR).
Repayment
Bullet (full amount at maturity), EMI (equal monthly instalments), or overdraft (drawn amount only).
Processing fee
1%–2% of the loan amount, paid upfront.
Insurance
Optional gold insurance to cover loss or damage.
The loan is usually disbursed within 24–48 hours after verification, making it a popular choice for urgent cash needs.
2. RBI's 75% loan-to-value cap – what it means for you
The RBI's "Gold Loan Guidelines" (2023, Section 3.2) stipulate that the maximum loan amount cannot exceed 75% of the gold's market value at the time of appraisal. This cap protects lenders from over-exposure and ensures borrowers do not receive a loan that could be worth more than the collateral.
Why it matters
Risk mitigation: If gold prices fall, the lender still has a cushion.
Interest calculation: The loan amount directly influences the interest payable; a higher LTV would mean a higher principal and, consequently, more interest.
Example
Gold weight
Purity
Market price per gram (₹)
Market value
75% LTV
Loan amount
10 kg
22 K
5,200
₹52,00,000
₹39,00,000
₹39,00,000
The lender will offer ₹39 lakh, not the full ₹52 lakh value of the gold.
3. Calculating the loan value from gold weight and purity
Step-by-step guide:
1. Determine the gold weight in grams. *1 kg = 1,000 g*.
2. Identify the purity (karat). *22 K = 91.67% pure, 24 K = 99.99% pure.*
3. Fetch the current market price per gram for the specific purity from a reliable source (e.g., RBI-approved bullion price, National Stock Exchange, or a reputable jeweller). As of FY 2025-26, the market price per gram for 22 K gold is ₹5,200.
4. Calculate the market value: Market value = Weight (g) × Purity factor × Price per gram
5. Apply the 75% LTV: Loan amount = Market value × 0.75
Worked example
Gold: 8 kg of 22 K jewellery.
Weight: 8 kg × 1,000 g/kg = 8,000 g.
Purity factor: 91.67% → 0.9167.
Market price: ₹5,200 per gram (current 22 K price).
Thus, the borrower can receive ₹30,24,900 in cash against 8 kg of 22 K gold.
4. Interest rates, FOIR, and rate resets
4.1 Fixed vs floating rates
Rate type
Basis
Reset frequency
Typical spread (FY 2025-26)
Fixed
RBI repo + 2%
None
9.5% – 12.5%
Floating
RBI repo + 1.5%
Every 3 months
8.5% – 11.5%
Lenders often offer a lower spread for fixed-rate loans to attract borrowers who prefer predictable payments. However, floating rates can be cheaper if the RBI repo rate stays low.
4.2 Fixed Obligations to Income Ratio (FOIR)
FOIR is the maximum percentage of a borrower’s monthly income that can be committed to loan repayments. RBI recommends a FOIR of 30% for gold loans. For self-employed or salaried borrowers, the lender will calculate:
Maximum EMI = Monthly income × 0.30
If the calculated EMI exceeds this limit, the borrower may need to reduce the loan amount or extend the tenure.
4.3 Rate resets and their impact
When a gold loan is floating, the interest rate is tied to the RBI repo rate. For example, if the repo rate is 4.0% and the lender’s spread is 1.5%, the effective rate is 5.5%. If the repo rate rises to 4.5%, the new rate becomes 6.0%. Borrowers should budget for a possible 0.5%–1.0% increase in EMI every reset cycle.
5. Repayment structures
Gold loans offer various repayment options to suit different cash flows. Borrowers can choose from:
Bullet repayment: Pay the full loan amount at maturity.
EMI (Equated Monthly Installment): Pay equal monthly instalments, including interest and principal.
Overdraft: Draw the loan amount as needed and repay the principal amount only.
For example, consider a ₹30,24,900 gold loan with a 2-year tenure and an EMI of ₹1,50,000 per month. The borrower will pay a total of ₹36,00,000 (₹30,24,900 principal + ₹5,75,100 interest) over the 2-year period.
6. Comparing gold loans with personal loans
Gold loans and personal loans are both popular borrowing options, but they have distinct features. Gold loans are secured loans, meaning the lender has a collateral in the form of gold jewellery. Personal loans, on the other hand, are unsecured loans, where the lender does not have any collateral.
Feature
Gold loan
Personal loan
Collateral
Gold jewellery
None
Interest rate
Fixed or floating
Fixed or floating
Tenure
1 month to 5 years
1 year to 5 years
Processing fee
1%–2% of the loan amount
2%–5% of the loan amount
Eligibility
Self-employed or salaried individuals
Self-employed or salaried individuals
Borrowers should consider their financial situation, credit score, and loan requirements before choosing between a gold loan and a personal loan.
7. Conclusion
Gold loans are a popular borrowing option in India, offering a quick and collateral-based way to access cash. With the RBI's 75% LTV cap, borrowers must understand how the loan amount is calculated and how interest is reset. This guide provides a comprehensive overview of gold loans, covering key features, RBI's guidelines, and repayment options. Borrowers should carefully consider their financial situation, credit score, and loan requirements before choosing a gold loan or a personal loan.
Disclaimer: The information provided in this article is for educational and informational purposes only. It does not constitute financial, investment, legal, or tax advice. Readers should consult a SEBI-registered investment advisor or other qualified professional before making any investment decisions.
Frequently Asked Questions
What is Gold Loan Guide India?
How gold loans work, the RBI's 75% LTV cap, and choosing between bullet and EMI repayment.
Are rates and tax figures on this page guaranteed?
No. Any rates, slabs, or scheme limits are indicative and FY-sensitive. Confirm on official sources (ITD, RBI, SEBI, EPFO, India Post, issuer) and consult a CA or licensed adviser for your situation.
Is this personalised financial advice?
No. Hannav content is educational. Loan sanction, tax filing, and investment decisions require your documents and professional advice where needed.