You take your gold to a lender, expecting its market value to decide how much you can borrow. Yet, the loan offered is lower than the jewellery’s full value. Why?
The answer lies in a small but important term called the LTV ratio. It influences the loan amount, the applicable gold loan per gram, and even your borrowing risk.
Understanding it before pledging your jewellery can save you from unrealistic expectations and help you choose a loan amount that is easier to repay.
What is the LTV Ratio in a Gold Loan?
LTV stands for Loan-to-Value. It is the percentage of your gold’s assessed value that a lender can lend.
Suppose your eligible gold is valued at ₹1,00,000 and the applicable LTV is 75%. The maximum loan amount would be ₹75,000.
The remaining value acts as a safety margin for the lender. This margin is important because gold prices can rise or fall during the loan tenure.
How Is the LTV Ratio Calculated?
The basic formula is:
| LTV Ratio = (Loan Amount ÷ Assessed Gold Value) × 100 |
For example, if you receive a loan of ₹80,000 against gold valued at ₹1,00,000, the LTV ratio is 80%.
However, the calculation begins only after the lender assesses your jewellery. The lender checks:
- The net weight of the gold
- Its purity or karat value
- The applicable market price
- Stones, beads or other non-gold materials
- The LTV limit applicable to the loan amount
Only the actual gold content is considered. Therefore, two ornaments with the same total weight may not qualify for the same loan amount.
What is the Maximum LTV for Gold Loans?
The maximum permitted ratio depends on the loan amount:
- Up to ₹2.5 lakh: Maximum LTV of 85%
- Above ₹2.5 lakh and up to ₹5 lakh: Maximum LTV of 80%
- Above ₹5 lakh: Maximum LTV of 75%
For the consumption loan, these are maximum limits, not guaranteed offers. The actual LTV may vary based on the chosen scheme, gold valuation, and the lender’s terms.
How Does the LTV Ratio Affect You?
The LTV ratio influences more than the amount you can borrow. It can also affect your repayment burden, choice of loan scheme and overall borrowing experience.
It Decides How Much You Can Borrow
A higher LTV gives you a larger loan against the same quantity of gold. A lower LTV reduces the amount available.
It Influences Your Repayment Burden
Taking the highest eligible amount may seem useful, but it also means repaying a larger principal and paying interest on it. Borrow only what you genuinely need.
It May Affect the Loan Scheme
Different schemes may have different LTV ratios, interest rates and repayment conditions. Compare the complete cost rather than choosing a scheme only because it offers more money.
Falling Gold Prices Can Matter
A sharp decline in gold prices can increase the effective LTV during the loan tenure. Depending on the loan terms, the lender may ask for an additional payment or take further action if dues remain unpaid. Timely repayment can help you avoid such situations.
How Can You Choose the Right LTV?
Start with your actual funding requirement. A lower LTV may create a more manageable repayment burden if you don’t need the maximum amount.
Before accepting an offer, ask how they valued your gold and whether they deducted stones or other materials. You should also check the interest rate, charges, tenure and repayment method.
Manappuram Finance provides an online gold loan per gram calculator for an initial estimate, although the final amount depends on branch valuation.
Conclusion
The LTV ratio links your gold value to the amount you can borrow. A higher ratio can unlock more funds, but it may also increase your repayment responsibility.
Before applying, assess your needs, review the loan terms and use a trusted calculator to calculate gold loan eligibility. A well-chosen loan amount can help you meet your needs without placing unnecessary pressure on your budget.
*Terms & conditions applied.
https://www.ujjivansfb.bank.in/banking-blogs/gold-loan/gold-loan-ltv-ratio-explained