Gold Loan Limits: Know the Minimum and Maximum

Gold has been a valuable asset since ancient times and its importance has not diminished through the years. From being purchased on auspicious occasions like Diwali and Dhanteras, to being gifted in marriage ceremonies, gold has always held a precious space in Indian traditions and culture. 

Table of Content

• Understanding Minimum and Maximum Gold Loan Limit
• Factors that Impact Your Gold Loan Limit
• Mistakes to Avoid While Applying for a Gold Loan

Today, the value of gold extends far beyond just being a symbol of wealth and prosperity. It is a convenient financial tool that can be used to provide relief in times of financial crisis just by availing a gold loan. Whether for urgent medical relief, education purposes, or business expansion, a gold loan presents a viable financial option to leverage your gold assets without selling them.

However, the minimum and maximum amount you can borrow against your gold has a limit. These limits are set by lenders and understanding them can help you navigate your loan options effectively and make more informed decisions.

Understanding Minimum and Maximum Gold Loan Limit

Each lender has a predetermined maximum and minimum loan limit they can offer. The minimum gold loan limit varies across different lenders, but it typically starts from as low as ₹1,000. This low entry point makes gold loans accessible to a wide range of borrowers, including those who need small amounts for urgent needs. 

The maximum gold loan limit is typically determined by the value of the gold you pledge. Lenders usually offer a loan amount equivalent to a certain percentage of the gold's market value, known as the Loan-to-Value (LTV) ratio. The Reserve Bank of India (RBI) has set guidelines for the LTV ratio, currently capped at 75% for most lenders. This means that if you pledge gold worth ₹1,00,000, you can get a loan of up to ₹75,000.

Factors that Impact Your Gold Loan Limit

Though a loan against gold comes with no-end use restrictions, the maximum and minimum amount you can borrow depends on several factors. Some of these factors include:

Gold Market Price

The fluctuating price of gold in the market directly impacts the maximum or minimum loan amount you can receive. If the market price is low, the value of the gold you pledge will be lower, which in turn reduces the loan amount you can secure.

Loan-to-Value (LTV) Ratio

In the case of secured loans, the LTV ratio refers to the percentage of the gold’s value that a lender is willing to provide as a loan. The LTV ratio set by the RBI caps the maximum loan amount at 75% of the gold's market value. This means lenders can offer loans up to 75% of the gold's market value. So, even if the gold you pledge is of high value, the LTV ratio limits the amount you can borrow.

Weight of Gold

The actual weight of the gold ornaments or coins you pledge also influences the maximum and minimum gold loan limit. Heavier and purer gold will fetch a higher loan amount compared to lighter and less pure gold.

Loan Financing Limit

Every lender has internal policies that cap the minimum and maximum loan amount one can borrow regardless of the gold's value. These are based on factors like the borrower's creditworthiness and the lender's risk appetite.

Mistakes to Avoid While Applying for a Gold Loan

Here are some common mistakes you should avoid when applying for a gold loan to secure a maximum gold loan per gram: -

Not weighing the credibility of the lender

It's crucial to thoroughly assess the reputation and credibility of the lender or non-banking financial company (NBFC) before pledging your gold as collateral.  Look for reviews, customer feedback, and their track record in handling gold loans. Opt for reputable institutions regulated by the Reserve Bank of India (RBI) to ensure the safety of your assets.

Choosing a lender with a low LTV

The Loan-to-Value (LTV) ratio is a critical factor in determining the loan amount. Borrowers may end up choosing a lender that is offering lower LTV than the market ratio, leading to getting a reduced gold loan amount per gram. 

Not ensuring the lender’s transparency in gold evaluation

Understand how the lender evaluates the purity and weight of your gold collateral. Ensure the lender uses transparent and reliable methods to assess the true value of your gold, as this directly impacts the loan amount.

Under or overestimating the gold’s value

To get the best loan terms, you need to accurately estimate the market value of your gold. Avoid underestimating the value, as you may end up with a lower gold loan amount per gram. Conversely, overestimating the value can lead to unrealistic expectations and loan rejections.

Gold loans provide a convenient and accessible financing option for individuals in need of funds. By understanding the minimum and maximum gold loan limits offered by different lenders, you can make an informed decision and secure the best deal for your needs.

At Muthoot Finance, we offer a wide range of gold loan schemes, designed to meet the varying needs of our customers. From competitive interest rates and minimal documentation to fast disbursement, gold loans from Muthoot Finance offer it all. To know your eligibility for availing a gold loan, consider using our Gold Loan Calculator.