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Gold Loan Renewal: What Happens if Gold Prices Fall? Be Aware!
- •Before renewing a gold loan, check the current value of your pledged gold to avoid potential issues.
- •If gold prices fall, the Loan to Value (LTV) ratio increases, potentially violating RBI regulations.
- •Lenders may demand additional funds or security to maintain the LTV limit; otherwise, your gold could be auctioned.
- •Gold value is calculated based on the average closing price of the last 30 days from IBJA or SEBI-regulated exchanges.
- •Before renewal, understand the outstanding amount, interest, new tenure, fees, and whether the gold will be re-evaluated.
Key Questions Answered
When gold prices fall, the market value of the pledged jewelry decreases while the outstanding loan amount remains the same. This increases the Loan-to-Value (LTV) ratio, and lenders may demand that you reduce the outstanding balance or provide additional security to maintain compliance with RBI rules.
According to current RBI rules, the maximum Loan-to-Value (LTV) limits are 85% for loans up to ₹2.5 lakh, 80% for loans ranging from ₹2.5 lakh to ₹5 lakh, and 75% for loans exceeding ₹5 lakh. These mandatory thresholds must be maintained throughout the entire loan tenure.
Under RBI guidelines, gold or silver value is calculated based on market price for purity, taking the average closing price of the last 30 days (whichever is lower) from IBJA or SEBI-regulated commodity exchanges. The value of stones or embellishments in the jewelry is excluded, relying solely on purity, weight, and reference price.
