What is a Gold Loan?
A Gold Loan is a secured loan where you pledge your gold ornaments or coins to a bank or NBFC as collateral in exchange for immediate cash. It is one of the fastest ways to raise funds during an emergency.
How Loan-to-Value (LTV) Works
Banks cannot lend you the full market value of your gold. The Reserve Bank of India (RBI) mandates a maximum Loan-to-Value (LTV) ratio (typically 75%). This means if your gold is valued at ₹1 Lakh, the maximum loan amount you can receive is ₹75,000.
Margin Calls
If gold prices drop significantly, the value of your pledged gold may fall below the required margin. The lender may ask you to deposit additional gold or prepay a portion of the loan to maintain the LTV ratio. Failure to do so could result in the lender auctioning your gold.