Gold, an asset traditionally saved for a rainy day in most Indian households, remains largely untouched. However, as gold prices soar, a shift is emerging in the gold loan space.
The current momentum in the gold loan market is more than just a reaction to record-high prices; it reflects a deeper change in how India views a deeply emotional asset.
The traditional stigma associated with “pledging gold” is gradually fading, according to industry players. Shaji Varghese, CEO of Muthoot FinCorp Ltd, said India is witnessing a “structural evolution rather than a price-led cycle.”
Gold loans are no longer the desperate last-resort options they once were. Instead, MSMEs, small traders and households are increasingly viewing them as a disciplined source of liquidity to manage business cash flows.
Loans against gold have risen about 42% year on year as of November 2025, according to data from credit bureau CRIF.
Gold loans tend to offer lower interest rates compared to personal loans mainly because gold loans are secured by a collateral. Interest rates on gold loans range from 7% to 16% per annum, while those on personal loans range from 10% to over 24% per annum.
Value vs risk
While the rising valuation of gold is an advantage, it also calls for a more informed approach from borrowers.
Pankaj Mathpal, founder and managing director of Optima Money Managers Pvt. Ltd, emphasizes that individuals must look at gold from a “portfolio perspective” rather than just a price perspective.
“A sharp run-up in gold prices increases the perceived value of holdings, making individuals feel wealthier,” said Mathpal. However, he warns that after a sharp rally, volatility risks increase.
“Gold should ideally be treated as a diversification asset rather than a return-generating asset, and exposure should remain within reasonable limits.”
For borrowers, higher prices mean the same gold jewellery can fetch a larger loan amount. However, this comes with a caveat: the loan-to-value (LTV) framework regulated by the Reserve Bank of India (RBI).
Currently, LTV limits are tiered at 85% for loans up to ₹2.5 lakh, around 80% for loans between ₹2.5 lakh and ₹5 lakh, and 75% for loans above ₹5 lakh.
Margin risks
The primary risk in a high-price environment is a sudden market correction. If gold prices fall significantly, the value of the pledged collateral declines.
Santosh Joseph, chief executive officer (CEO) of Germinate Investment Services, explains that when the underlying asset—gold—rises sharply, it creates a “margin of safety” for both the lender and the borrower.
“The institution has a huge cushion because the gold is worth far more than the loan,” Santosh notes. “But the contrary can also happen. When gold prices go down, you will get calls for covering the margin.”
In such cases, the lender may issue a margin call, requiring the borrower to either repay part of the loan or pledge additional gold to restore the LTV ratio.
If the borrower fails to meet this requirement, the lender may auction the pledged gold to recover dues.
Santosh also added that gold monetization via a loan is a win-win, since one is not selling their gold. Meanwhile, if prices appreciate, that becomes an added advantage. Further, the cost of funds for gold loans is comparatively lower.
Borrow smart
To navigate such volatility, planners suggest adopting conservative borrowing strategies.
One approach is not borrowing the maximum eligible amount. Keeping a “buffer margin” ensures that minor price corrections do not immediately trigger margin calls.
Borrowers should also ensure their repayment capacity is clear. Santosh suggests that staying up to date with interest payments—whether monthly or quarterly—is the best way to keep the loan under control.
“Monetizing gold in a non-selling format is how the gold loan operates,” he added.
As distribution networks deepen and regulatory clarity improves, gold loans are evolving into a more mainstream liquidity tool.
By maintaining a disciplined approach and staying well within borrowing limits, individuals can leverage high gold prices while keeping their safe-haven asset within reach.