A gold loan is a secured loan against gold jewellery or specified gold coins, and it is calculated differently from an ordinary personal loan. The lender does not primarily price your income; it prices the gold. It weighs the ornaments, tests their purity, values the pure gold content at a per-gram rate, applies a loan-to-value cap that limits the loan to a percentage of that value, and charges interest on the amount actually lent. This guide works each step in rupees, using the Reserve Bank of India loan-to-value slabs in force from April 2026, with every gold price labelled as an assumed illustration, because gold prices move daily and no guide should present a price as current. Check the live price and the lender sanction letter before borrowing.

The four steps, in order

Every gold loan follows the same four steps, whichever lender offers it. First, appraisal: the lender valuer weighs the ornaments in the borrower presence, tests purity, and records the net weight and purity in a certificate. Second, valuation: the pure gold content is multiplied by the per-gram rate the lender applies, giving the eligible gold value. Third, the loan-to-value cap is applied: the loan cannot exceed the permitted percentage of the eligible value, and the sanctioned amount is the lower of the amount requested and the cap. Fourth, disbursement against the sanction letter, which states the rate, the tenure, the repayment schedule, the charges, and the auction and return terms. The gold stays with the lender until the loan is repaid in full, and the lender must return it within seven working days of full repayment under the RBI directions.

Two features of the process deserve emphasis before the arithmetic. The valuation is done by the lender valuer, not by the borrower, and the borrower should watch the weighing and the purity test, keep the certificate, and confirm the net weight recorded matches the weighing witnessed. And the loan is against gold jewellery, ornaments, and specified coins only, under the directions: raw gold, silver items beyond the permitted scope, and loans taken to buy gold or silver are outside the framework. A lender that offers to lend against bullion bars or unrefined metal is not operating under the same directions, and the protections below may not apply.

Per-gram value: weight, purity, and price

Per-gram value starts with pure gold content. Jewellery is rarely pure gold: 22-karat gold is 22 parts gold out of 24, which is 91.7% pure, and is stamped 916; 18-karat is 75% pure, stamped 750; 24-karat is 99.9% pure or finer. The pure content is the net weight multiplied by the purity fraction: 10 grams of 22-karat gold contain 10 times 22 divided by 24, which is 9.17 grams of pure gold. Stones, enamel, and other non-gold parts are excluded from the weight used for valuation, and the net weight after the purity test is what counts, not the gross weight on the kitchen scale. Where the collateral is below 22-karat purity, the directions value it at 22-karat purity, which protects the borrower from a low-purity discount being applied twice.

The price applied to the pure content is the lender per-gram rate, derived from the prescribed reference rates: the lower of the 30-day average price or the previous day closing price, from the India Bullion and Jewellers Association or a SEBI-regulated exchange. Using the lower of the two prevents a one-day price spike from inflating the loan, and it means the valuation on a rising market lags the headline price slightly, by design. The per-gram rate for 22-karat gold is the pure-gold rate multiplied by 22 divided by 24, and for 18-karat by 18 divided by 24. No live price is quoted in this guide: gold prices move daily, the rate that matters is the one on the valuation date, and the certificate and sanction letter state the rate actually applied.

Assumed pure-gold price of ₹12,000 per gram, for illustration only. The lender rate on the valuation date governs.

Loan-to-value: the RBI slabs

The loan-to-value ratio, LTV, is the loan amount divided by the eligible gold value, and the RBI directions cap it by loan size, for banks and non-banking financial companies alike. For loans up to ₹2.5 lakh, the maximum LTV is 85%. For loans above ₹2.5 lakh and up to ₹5 lakh, it is 80%. For loans above ₹5 lakh, it is 75%. The cap must be maintained throughout the tenure, so if the gold price falls and the outstanding loan exceeds the permitted percentage of the current value, the lender may require a part repayment or additional collateral, as the sanction letter provides. The slabs replaced the earlier flat 75% cap from 1 April 2026, when the RBI Lending Against Gold and Silver Collateral Directions, 2025, took effect for borrowers, and they apply uniformly to regulated lenders.

The practical consequence is that a borrower never receives the full value of the gold in cash: there is always a margin, the lender cushion against a price fall between valuation and sale, and the margin is larger for larger loans. A borrower who needs a specific sum should work backwards: divide the sum needed by the applicable LTV percentage to find the eligible gold value required, then divide by the per-gram rate and the purity fraction to find the weight needed. Borrowing the maximum the cap allows is not obligatory, and borrowing less than the maximum leaves a larger cushion against a margin call if prices fall, which is worth weighing against the convenience of the larger sum.

Worked example: 10 grams of 22-karat gold

Work one loan end to end, with every price labelled assumed. Ornaments: 10 grams net weight, 22 karat. Pure gold content: 10 times 22 divided by 24, which is 9.17 grams. Assumed pure-gold rate: ₹12,000 per gram. Eligible gold value: 9.17 times ₹12,000, which is ₹110,000, or equivalently 10 grams times the 22-karat per-gram rate of ₹11,000, which is also ₹110,000. The value is below ₹2.5 lakh, so the maximum LTV is 85%, and the maximum loan is 85% of ₹110,000, which is ₹93,500. At the 75% slab, for comparison, the same gold would support ₹82,500, which shows how much the slab matters: the same ornaments support ₹11,000 more under the small-loan slab than under the large-loan slab, because the cap, not the gold, is the binding constraint.

Change one input and watch the result move. If the assumed pure-gold rate falls to ₹10,800, a 10% fall, the eligible value falls to ₹99,000 and the maximum loan at 85% falls to ₹84,150, a fall of ₹9,350 on the same ornaments. If the ornaments were 18 karat instead, the pure content would be 7.50 grams, the value at the same assumed rate would be ₹90,000, and the maximum loan at 85% would be ₹76,500. The arithmetic is linear in every input, so any error in weight, purity, or rate flows straight into the loan amount, which is why the witnessed appraisal and the recorded certificate matter more than any calculation done at home.

Interest and repayment: bullet, EMI, and overdraft

Interest is charged on the amount lent, at the rate in the sanction letter, for the time the money is outstanding. Gold loans are commonly repaid in one of three patterns. A bullet repayment pays interest periodically or at the end, with the principal repaid in one sum at maturity; under the directions, bullet loans require principal and interest to be repaid within 12 months, ending the earlier practice of interest-only rollovers. An EMI pattern repays principal and interest together in equal instalments, like a personal loan, and suits a regular income. An overdraft or line-of-credit pattern charges interest only on the amount drawn, and suits a borrower who needs flexible access and can repay irregularly. The sanction letter states which pattern applies, and the total interest differs sharply between them for the same rate and principal, because it depends on how long each rupee is outstanding.

Work the interest on the example, at an assumed rate, to show the scale. A loan of ₹82,500 at an assumed 12% a year, simple interest for 12 months, accrues ₹9,900 of interest, because 82,500 times 0.12 is 9,900, and the total to repay is ₹92,400. The 12% is an assumption for illustration, not a market rate: actual gold-loan rates vary by lender, loan size, tenure, and the borrower profile, and the sanction letter rate is the only figure to rely on. Compare offers on the total cost, interest plus charges, for the same repayment pattern and tenure, not on the headline rate alone, because a lower rate with higher charges, or a bullet pattern that keeps the full principal outstanding, can cost more than a higher rate on a reducing balance.

Charges, GST, and the sanction letter

Charges sit on top of interest, and the sanction letter must specify them: processing charges, valuation charges, documentation charges, and any penal charges for late payment, each stated before signing. Goods and Services Tax does not apply to the interest itself, which is an exempt financial service, but it can apply to processing and other service charges, and the sanction letter should show the GST on each charge so the total cost is visible. Ask for the total outflow, principal plus interest plus all charges including GST, for the full tenure, in writing, before signing, and compare that total across lenders. A lender that cannot state the total cost plainly is a lender to avoid, however attractive the headline rate looks.

The sanction letter should also state the valuation methodology, the repayment schedule, the auction rules, and the return timeline, as the directions require. Read those four items before the rate: the valuation methodology decides the loan amount, the repayment schedule decides the cash flow, the auction rules decide what happens on default, and the return timeline decides when the gold comes home. Keep a copy of the sanction letter, the valuation certificate, and every receipt, because a dispute about weight, purity, or return is decided on documents, and the borrower copy is the only record the borrower controls.

If the loan is not repaid: auction and return

If the loan is not repaid by maturity, the lender may auction the pledged gold, but only after notice to the borrower and under the reserve-price rules in the directions: the reserve price is set at 90% of the market value, reducible to 85% after two failed auctions, and any surplus from the sale, above the amount owed, must be remitted to the borrower. The borrower should receive notice before the auction, with an opportunity to repay and redeem the gold, and the auction terms, including the reserve price, should be in the sanction letter signed at the start. A lender that auctions without notice, or below the prescribed reserve, is not following the framework, and the borrower should escalate through the lender grievance channel and the RBI ombudsman route.

On full repayment, the lender must return the pledged gold within seven working days, and delay beyond the prescribed period attracts compensation under the directions, ₹5,000 for each day of delay attributable to the lender. Inspect the returned ornaments on receipt, against the valuation certificate weight and description, before signing the release, because a discrepancy found later is far harder to establish. The return, like the appraisal, should be witnessed and documented, and the release should be signed only when the gold in hand matches the gold described.

Mistakes: price, purity, and tenure

First, borrowing against a headline gold price instead of the lender valuation rate: the valuation uses the lower of the 30-day average or the previous day rate, and the loan will be smaller than a headline-price calculation promises. Second, weighing gross weight, including stones and settings, instead of net gold weight, which overstates the value and the loan. Third, assuming the LTV cap is 75% for every loan, when the small-loan slabs allow 85% and 80%, or assuming 85% for a large loan, when the cap is 75%. Fourth, comparing a bullet loan with an EMI loan on rate alone, when the total interest depends on how long the principal is outstanding. Fifth, ignoring charges and GST on charges, which can add materially to the cost. Sixth, borrowing for longer than the need, or rolling a bullet loan, which the directions now restrict: borrow the amount needed, for the time needed, and repay on the schedule signed.

Frequently asked questions

How is a gold loan amount calculated?

From the gold value and the loan-to-value cap. The lender weighs the ornaments, tests purity, and values the pure gold content at a per-gram rate, giving the eligible gold value. The loan cannot exceed the permitted percentage of that value: up to 85% for loans up to ₹2.5 lakh, up to 80% above ₹2.5 lakh up to ₹5 lakh, and up to 75% above ₹5 lakh, under the RBI directions effective 1 April 2026.

How is the per-gram value of gold calculated for a loan?

Multiply the net weight by the purity fraction to get pure gold grams, then multiply by the per-gram rate. For example, 10 grams of 22-karat gold contain 9.17 grams of pure gold, and at an assumed ₹12,000 per pure gram the value is ₹110,000. The rate used is the lower of the 30-day average or the previous day rate, and no live price is quoted in this guide.

What is the LTV for a gold loan in India?

Under the RBI Lending Against Gold and Silver Collateral Directions, 2025, effective 1 April 2026, the maximum loan-to-value is 85% for loans up to ₹2.5 lakh, 80% for loans above ₹2.5 lakh up to ₹5 lakh, and 75% for loans above ₹5 lakh, for banks and NBFCs alike. The cap must be maintained throughout the tenure.

Does GST apply to a gold loan?

GST does not apply to the interest on a loan, which is exempt, but it can apply to processing and other service charges. The sanction letter should show the GST on each charge, and the total cost, interest plus charges including GST, is the figure to compare across lenders.

What happens if I cannot repay a gold loan?

The lender may auction the pledged gold after notice, under reserve-price rules: 90% of market value, reducible to 85% after two failed auctions, with any surplus remitted to the borrower. The borrower should receive notice and an opportunity to repay first. On full repayment, the gold must be returned within seven working days.

How long does a gold loan last?

Tenure is stated in the sanction letter. Bullet gold loans require principal and interest to be repaid within 12 months under the directions, ending routine interest-only rollovers. EMI and overdraft patterns follow their own schedules. Borrow for the time actually needed, and confirm the tenure and repayment pattern before signing.