Gold has always been a trusted store of value in India, especially during financial needs. Many prefer pledging gold instead of selling it, as it carries both monetary and emotional worth. This has made gold loans very popular, with the market size touching nearly ₹4 trillion in January 2026, up from ₹1.75 trillion a year earlier.
However, falling gold prices can directly reduce the loan amount you qualify for. Since loan eligibility depends on the market value of pledged gold, a decline weakens the loan-to-value (LTV) ratio. If prices drop after the loan is disbursed, lenders may issue a margin call, asking borrowers to repay part of the loan or pledge more gold. Failure to do so can lead to auction of the pledged jewellery.
The Reserve Bank of India (RBI) has set strict rules:
– Only 22 karat jewellery or coins are accepted.
– Limits: 1 kg jewellery and 50 grams coins.
– LTV caps: 85% for loans up to ₹2.5 lakh, 80% for ₹2.5–5 lakh, and 75% above ₹5 lakh.
– Interest rates range from 8.5% to 9% in public banks, higher in private lenders.
Borrowers benefit when gold prices rise, as collateral value strengthens and margin calls reduce. But when prices fall, risks increase. Hence, tracking gold prices and choosing repayment terms wisely is crucial before taking a gold loan.
