How Gold Loan Amount Is Calculated: LTV, Purity & Gold Rate Explained
23 September 2026
Photo: rawpixel (CC0)
A gold loan is one of the fastest ways to raise money in India — but how much will a lender actually give you against your jewellery? The loan amount depends on three things: the weight of pure gold, its purity (karat), and the Loan-to-Value (LTV) ratio allowed. Here's exactly how it is calculated.
Step 1: Net weight — only the gold counts
Lenders weigh your jewellery and deduct stones, beads, wax, lac and other non-gold parts. A 40-gram necklace with 4 grams of stones has a net gold weight of 36 grams.
Step 2: Purity — 22K, 20K or 18K
Purity is checked with a touchstone or an XRF machine. Lower purity means less gold per gram:
| Purity | Gold content | Value compared to 22K |
|---|---|---|
| 22 carat | 91.6% | 100% |
| 20 carat | 83.3% | about 91% |
| 18 carat | 75% | about 82% |
Step 3: Gold value — how lenders price your gold
As per RBI rules, lenders value gold jewellery using the 22-carat gold price — the lower of the average closing price of the last 30 days or the previous day's closing price, as published by the India Bullion and Jewellers Association (IBJA) or a SEBI-regulated commodity exchange. So the rate used is usually a little below the price you see in the market today.
Step 4: Apply the LTV ratio
The Loan-to-Value (LTV) ratio is the maximum percentage of the gold's value that can be given as a loan. RBI caps it for banks and NBFCs; under RBI's 2025 gold loan directions, smaller loans can get a higher LTV (up to about 85% for loans up to ₹2.5 lakh) while larger loans are capped lower (75% above ₹5 lakh). Many lenders keep a cushion and offer less than the maximum — always ask your lender for their current LTV.
Worked example
Assume (for illustration only) the lender's 22-carat valuation rate is ₹10,000 per gram:
| Step | Calculation | Result |
|---|---|---|
| Net gold weight | 40 g − 4 g stones | 36 g |
| Purity | 22 carat | 100% of 22K rate |
| Gold value | 36 g × ₹10,000 | ₹3,60,000 |
| Loan at 75% LTV | ₹3,60,000 × 75% | ₹2,70,000 |
If the same jewellery were 18 carat, its value would be about 82% of this, so the loan would also be about 18% lower.
5 tips to get the highest gold loan amount
- Pledge hallmarked (BIS) jewellery — purity is easier to verify.
- Compare LTV, interest and fees across banks and NBFCs — the same gold can fetch different amounts.
- Ask about the valuation rate the lender uses on the day.
- Choose the right repayment option — EMI, interest-only or bullet repayment.
- Repay or renew on time — if gold prices fall sharply, lenders may ask for extra margin.
Frequently Asked Questions
Are gold coins accepted? Banks may accept specially minted gold coins sold by banks (with limits on weight). Gold bars and bullion are generally not accepted as collateral.
Does my CIBIL score matter? Gold loans are secured, so approval depends mainly on the gold — but a good repayment record helps you get better rates.
What happens if I can't repay? After due notice, the lender can auction the gold. Any surplus after recovering dues must be returned to you.
Rules and LTV limits can change — check the latest terms with your lender before you pledge.
Need cash quickly? Compare gold loan offers on Best Home Loan and get money in as little as 30 minutes.
