Gold loans: What is LTV ratio and how does it affect your loan amount?

An easy option to borrow money without having to liquidate your long-term assets is through a gold loan. LTV ratio, in addition to other variables, has a big impact on how much money you can borrow against your gold. Let us go through it in detail.

Kirti Jha, MintGenie Team
First Published19 Jul 2022, 10:16 AM IST
In India, obtaining a gold loan is simple; anyone with additional gold jewellery may use it as collateral to obtain a loan.
In India, obtaining a gold loan is simple; anyone with additional gold jewellery may use it as collateral to obtain a loan.(AFP)

There are instances when we need emergency finances and it might be tough to organise for money in a short period of time. Gold loans are increasingly being seen as a feasible solution in certain circumstances.

In India, obtaining a gold loan is simple; anyone with additional gold jewellery may use it as collateral to obtain a loan. A gold loan is a simple way to borrow cash without having to sell your long-term assets. Many institutions give gold loans right away after the documentation and KYC have been verified.

Depending on the quality of the gold, different interest rates apply to gold loans. The quantity that may be obtained increases with the quality of the gold. In contrast to the private sector, where interest rates can reach 24 percent annually, the public sector's interest rates range from 8 percent to 18 percent annually.

Apart from other factors, LTV ratio plays a significant role in determining the amount of loan you will receive against your gold. Let us understand what is LTV ratio.

READ MORE: Looking to buy gold? Here are 5 factors affecting gold prices

What is LTV Ratio?

The loan to value ratio, often known as LTV ratio, refers to the amount a consumer will get in comparison to the worth of gold. For instance, if the LTV is 60% and the value of the jewellery is Rs 1,00,000, the highest loan the consumer can receive is INR 60,000.

The total value of your gold that has been pledged is the most significant component in determining the amount of your gold loan. Before providing the loan amount, the lender will evaluate the gold you have provided, and the gold loan amount will be determined based on this examination. It is used to calculate the gold's market worth depending on the current exchange rate.

The LTV, which all lenders must lend at, has been fixed by the Reserve Bank of India at 75%. As a result, the majority of lenders provide loans for up to 75–77 percent of the market value of the gold that is pledged. The goal of the high LTV ratio is to increase citizens' ability to borrow money in times of financial need.

Gold loans outperform the majority of unsecured, personal, and even secured loan kinds. Indians have a history of wearing gold jewellery that has been pledged as collateral, therefore they are more likely to repay loans regardless of renewal fees and interest rates.

Comparison between digital gold, gold ETFs and gold bonds. 
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First Published:19 Jul 2022, 10:16 AM IST
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