How Gold Loans Work in India
- The Bullet Repayment Model: Unlike personal loans where you pay a monthly EMI, most gold loans use a "bullet" repayment scheme. You pay nothing during the tenure. Instead, you pay the entire principal and accumulated interest in one massive sum at the end of the term to release your gold.
- LTV Limits: The Reserve Bank of India (RBI) mandates that banks and NBFCs cannot lend more than 75% of the total value of your pledged gold. This Loan-to-Value (LTV) ratio acts as a safety margin for the lender if gold prices crash.
- Beware of Stone Deductions: If you pledge jewelry containing precious stones or diamonds, the appraiser will deduct their weight. You only get a loan based on the pure gold content, usually calculated at the 22-Karat market price.
- Auction Risk: If you fail to make the bullet repayment at the end of the tenure, the lender has the legal right to auction your family jewelry to recover the loan amount and interest.