How Gold Loans Work: LTV, Tenure and Repayment Mechanics Explained

Published: 19 October 2026

Category: how-to-guides | cardbuzz

Tags: gold loans, LTV, loan tenure, repayment, RBI guidelines, secured loans

A gold loan is one of the simplest credit products in India: you hand the lender your gold jewellery, they value it, and they lend you a regulated fraction of that value. But the simplicity hides mechanics worth understanding — how the loan-to-value ratio is set, how your gold is valued, what tenure options exist, and how repayment actually works. Since April 2026, all of this sits under RBI's (Lending Against Gold and Silver Collateral) Directions, 2025, which standardised the rules for banks and NBFCs alike.

The LTV ladder: how much you can borrow

The loan-to-value ratio is the percentage of your gold's assessed value the lender may lend you. RBI now mandates a tiered cap based on the total consumption loan amount per borrower:

  • Up to Rs 2.5 lakh: maximum 85% LTV
  • Above Rs 2.5 lakh up to Rs 5 lakh: maximum 80% LTV
  • Above Rs 5 lakh: maximum 75% LTV

The caps apply uniformly to banks and NBFCs, and the prescribed LTV must be maintained on an ongoing basis throughout the loan's tenor — not just at sanction. That last clause matters: if gold prices fall sharply, the lender can ask you to top up collateral or part-repay to restore the ratio. Lenders may also lend below the cap; the figures above are ceilings, not entitlements.

There are also quantity ceilings per borrower: up to 1 kg of gold ornaments and up to 50 grams of gold coins across all loans. And only jewellery, ornaments, and coins qualify — bullion bars, ETFs, mutual fund units, and digital gold cannot be pledged, and lenders may not grant loans for the purpose of buying gold in any form.

How your gold gets valued

Valuation follows a standardised procedure that you are entitled to witness. You must be present while the lender assays your gold at sanction, and the deductions — for stones, fastenings, and other non-gold elements — must be explained to you and recorded in the certificate the lender issues. The certificate carries the purity, gross and net weight, deductions, a photograph of the pledged items, and the assessed value.

The price used is the lower of the 30-day average closing price or the previous day's closing price of equivalent purity, published by the India Bullion and Jewellers Association or a SEBI-recognised commodity exchange. Only the intrinsic gold content counts — stones and making are excluded. Valuation is done on a 22-carat-equivalent basis, so lower-purity jewellery is scaled down proportionally.

Tenure: what the rules allow

For consumption loans with bullet repayment, RBI caps the maximum tenor at 12 months. Lenders offering EMI-style or interest-serviced gold loans publish their own tenure grids — bank schemes commonly run up to 24–36 months on EMI structures, per their published product pages. The practical point: a gold loan is short-to-medium-term credit. It is not a product for multi-year borrowing, and the 12-month bullet cap ends the old practice of rolling interest-only loans forward indefinitely.

The three repayment structures

Most lenders offer some combination of three structures. In a bullet repayment loan, you pay nothing until the end — principal plus accumulated interest in one shot, within the 12-month cap. In an interest-serviced loan, you pay the interest monthly (or quarterly) and the principal at maturity. In an EMI loan, principal and interest amortise together like a personal loan EMI.

Bullet suits borrowers expecting a lump sum — a bonus, a property sale, a harvest. Interest-serviced suits steady monthly cash flow with an uncertain principal date. EMI suits salaried borrowers who want the discipline of a fixed outflow. Under the 2025 directions, renewing a bullet loan is allowed only after the accrued interest is paid, and every renewal needs a fresh credit assessment — so plan your repayment source before you sign, not after.

What happens to your gold in the meantime

Your jewellery is stored in the lender's own secured vaults on branch premises, under the custody of the lender's employees — the directions are explicit about this. If the collateral is lost or damaged while pledged, the lender bears the repair or compensation cost. On full repayment, the lender must return your gold within seven working days; delays attributable to the lender attract compensation of Rs 5,000 per day, payable to you. Get the release in writing and check the items against your certificate before you leave the branch.