How Gold Loan Calculation Works — Complete Guide
A gold loan (also called a loan against gold) lets you borrow money by pledging your gold jewellery or coins as collateral. The loan amount you receive depends on three factors: the weight of your gold, its purity (karat), and the lender's Loan-to-Value (LTV) ratio.
Gold Loan Formula
For example, if you have 10 grams of 22K gold and today's 22K gold rate is ₹6,800 per gram, your gold's market value is ₹68,000. At the maximum 75% LTV ratio (set by the Reserve Bank of India), you can borrow up to ₹51,000.
What is LTV Ratio?
LTV (Loan-to-Value) ratio is the percentage of your gold's market value that a lender will offer as a loan. The RBI mandates a maximum LTV of 75% for all gold loans in India. Banks typically offer 60–75% LTV, while NBFCs like Muthoot Finance and Manappuram Finance offer up to 75%.
Hidden Charges in Gold Loans
Most borrowers only compare interest rates, but the true cost of a gold loan includes several hidden charges:
- Processing fee: 0.5% to 2% of the loan amount
- Valuation fee: ₹200 to ₹500 for gold purity testing
- Stamp duty: 0.1% to 0.5% (varies by state)
- Documentation charges: ₹100 to ₹500
- Insurance premium: Some lenders charge for insuring pledged gold
- GST at 18% on all the above fees
Our calculator is the only tool that accounts for all of these charges, giving you the effective interest rate — the true annual cost of borrowing.
Gold Purity & Its Impact on Loan Amount
Gold purity directly affects your loan eligibility. Here's how much loan you can get per gram at different purity levels (at today's approximate rates, 75% LTV):
| Purity | Karat | Approx. Rate/g | Loan/g (75% LTV) |
|---|---|---|---|
| 99.9% | 24K | ₹7,400 | ₹5,550 |
| 91.6% | 22K | ₹6,780 | ₹5,085 |
| 83.3% | 20K | ₹6,162 | ₹4,622 |
| 75.0% | 18K | ₹5,550 | ₹4,163 |
Rates are illustrative. Use the calculator above for real-time rates.
Why Use This Calculator?
Gold Loan Calc is India's most comprehensive gold loan calculator. Unlike basic calculators, we show you the net disbursement (what you actually receive after all deductions), the effective interest rate (true cost including fees), and a complete fee breakdown with GST. All calculations happen securely in your browser — no data is sent to any server. It's 100% free with no registration required.
Types of Gold Loans in India
Gold loans come in several forms, each suited to different borrowing needs:
- Regular Gold Loan (Term Loan): Fixed loan amount, fixed tenure (3–36 months), and regular EMI or bullet repayment. This is the most common type offered by banks like SBI and HDFC.
- Gold Loan Overdraft (OD): A revolving credit line secured against gold. You draw funds as needed and pay interest only on the utilized amount. Ideal for businesses with variable cash flow needs. Calculate OD interest →
- Agricultural Gold Loan: Offered at subsidized rates (as low as 7%) to farmers for crop cultivation, equipment purchase, or farm expenses. Requires proof of agricultural land ownership. Check agriculture loan rates →
- Bullet Repayment Gold Loan: Pay only monthly interest during the tenure and repay the entire principal at the end. Popular among traders and seasonal businesses. Calculate bullet repayment →
- Gold Loan Balance Transfer: Move your existing gold loan from a high-interest NBFC to a lower-interest bank. The new lender settles your old loan and transfers the gold to their vault.
5 Common Mistakes Gold Loan Borrowers Make
Based on our analysis of thousands of gold loan calculations, here are the costliest mistakes borrowers make:
- Comparing only the interest rate: A loan at 9% with 2% processing fee and ₹500 valuation fee is more expensive than a loan at 10% with zero processing fee. Always compare the effective interest rate.
- Not checking the gold rate used: Some lenders use a rate 5–10% below the IBJA benchmark for valuation. Always ask what rate they're using to value your gold — and compare it against the live rate.
- Ignoring the LTV ratio difference: A lender offering 60% LTV at 8% isn't necessarily better than one offering 75% LTV at 10%, because you'd need to borrow less with the higher LTV lender if your need is fixed.
- Missing the renewal/rollover fee: If you can't repay at tenure end, many lenders charge a renewal fee (1–2%) to extend the loan. This hidden cost adds up if you keep rolling over.
- Pledging more gold than necessary: Only pledge enough gold to cover your borrowing need plus a 10% buffer. Pledging excess gold means unnecessary risk with no benefit.
Tips for Getting the Best Gold Loan Deal
- Get your gold hallmarked first: BIS hallmarked gold with HUID gets faster and more accurate valuation, often resulting in a higher loan amount
- Compare at least 3 lenders: Use our comparison table to see rates from 10+ banks and NBFCs side-by-side
- Ask for existing customer discounts: If you have a savings account or FD with the bank, ask for a reduced processing fee or preferential interest rate
- Check prepayment terms: Choose a lender that allows penalty-free prepayment so you can close the loan early without extra charges
- Use our calculator before visiting the branch: Know your gold's approximate value and eligible loan amount before you walk in. This prevents accepting unfavorable terms under pressure