When applying for a gold loan, one of the most important factors that decides your loan amount is the Loan-to-Value (LTV) ratio. LTV ratio is the percentage of the gold’s current market value that a lender can offer as a loan. In India, as per RBI guidelines, lenders can provide up to 75% of the gold’s value as a loan. For example, if your gold is worth ₹1,00,000, the maximum loan you can get is ₹75,000.
A higher LTV ratio means you get more money against your gold, but it may also come with slightly higher interest rates. On the other hand, a lower LTV ratio may give you a smaller loan amount but at a better interest rate and lower risk of default.
The value of your gold is determined by its purity and the current market price. Lenders usually do not consider stones or gems in jewelry while calculating the loan value. For instance, if you pledge 22-carat gold jewelry, the loan amount will be based on the pure gold content only.
Borrowers should carefully assess their financial needs before deciding on the LTV. If you only need a small amount, opting for a lower LTV can save you money on interest. However, if you need maximum funds, a higher LTV will be more useful.
In summary, the Loan-to-Value ratio directly impacts how much money you receive, the interest rate you pay, and your repayment burden. Choosing the right LTV according to your financial situation ensures that you get the best benefits from your gold loan.