What Are The New Norms For Gold Loan?

A gold loan is easy to apply and the entire process can be done online. Read on to know what are the new norms for gold loan in detail only at IIFL Finance.

14 Nov,2022 11:10 IST 1962 Views
What Are The New Norms For Gold Loan?

When one is short on cash, a gold loan can offer the quickest way out of a sticky situation. A gold loan is essentially a loan against one’s personal gold jewellery and taken out for a short period of time, from a few days to a few months.

The borrower keeps the gold as collateral with the bank or the non-banking finance company in lieu of the loan. The lender keeps the gold safe in a secure vault, and returns it to the borrower when the loan has been fully repaid.

A gold loan is easy to apply and the entire process can be done online from anywhere. Moreover, the gold can be valued by the lender’s representative at the borrower’s home, and the money can be disbursed quickly in the bank account provided.

Moreover, a borrower’s credit score or any history of defaulting on loans does not impact his or her chances of getting a loan, as the lender keeps the gold as collateral, which can be invoked in case of a default.

Loan-To-Value Ratio

The lender typically gives out a fraction of the assessed market value of the pledged gold as loan. This is the loan-to-value (LTV) ratio. Gold loans have variable interest rates based on various factors. The LTV ratio is one such factor.

The LTV ratio determines the amount of loan a borrower will receive for the gold pledged. This ratio is used by banks and non-banking financial institutions to determine the amount they will extend to a borrower against the pledged gold. So, if the pledged gold is valued at say Rs 1 lakh and the LTV ratio is 60%, the lender will extend Rs 60,000 as loan to the borrower.

RBI Norms On LTV Ratios On Gold Loans

The Reserve Bank of India (RBI) determines the maximum LTV ratios gold loan lenders are allowed. Till 2020, lenders were allowed an LTV ratio of up to 75%.
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In 2020, however, the RBI relaxed this norm and allowed lenders to extend loans of up to 90% of the assessed value of the pledged gold after the Covid-19 pandemic.

This meant that borrowers could get more money for the same amount and quality of the gold pledged. This was, therefore, a boon both for the lenders and borrowers alike. However, the ratio has now reverted to 75% as the Indian economy and businesses recover from the pandemic.

Importance Of LTV Ratio

For borrowers, the LTV ratio represents credit risk. A higher LTV ratio means a borrower can borrow more for the same amount of gold. A lender will determine the amount it will lend on the basis of the LTV ratio. A higher amount of loan will need a lower down payment that the borrower may be planning to make for buying another asset or to invest in their business. But for a higher LTV ratio, the interest rate will be higher.

For lenders, the LTV ratio is important as it helps them determine the loan terms and amount. A higher LTV ratio means a higher rate of interest but also exposes the lender to a greater risk, if the borrower does not repay the loan in time and defaults on it. A higher ratio also means higher risk in the case of the market price of gold drops.


While the RBI relaxed the LTV ratio in 2020 before reverting to the 75% mark, it is up to the lenders and borrowers to finalise the best terms on which a gold loan is offered and availed.

It is, therefore, best to approach a reliable and well-known lender like IIFL Finance to get the best interest rates as well as the highest LTV ratios. Moreover, IIFL Finance will ensure that your gold is kept safely, in secure vaults and is returned to you safely once the loan has been fully repaid at the end of its tenor.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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