Gold loan repayment option: Choose based on cash flow, not loan eligibility

Compare total cost and maintain a buffer to reduce auction risk

The Reserve Bank of India’s (RBI) revised loan-to-value (LTV) ratio norms for gold loans, which came into force on April 1, 2026, are expected to reduce the amount borrowers can obtain under bullet repayment gold loans. The LTV ratio for such loans will be calculated on the total repayment obligation, including accrued interest, instead of only the principal. The maximum tenure for bullet loans has also been capped at 12 months. A recent ICRA report says that more lenders could shift their gold loan portfolios in favour of regularly serviced loans. 

Lower eligibility 

The reduction in sanctioned amount in a bullet repayment option will depend on loan size, interest rate and tenure. “Factoring in accrued interest into the LTV ceiling is expected to reduce upfront disbursal under bullet repayment plans by around 10 to 15 per cent,” says Abhishek Kumar, Securities and Exchange Board of India (Sebi)-registered investment adviser and founder, SahajMoney.com. 

Regular equated monthly instalment (EMI) and quarterly repayment options, along with loans that require only periodic interest servicing, can still utilise the full regulatory LTV threshold. 

Bullet loans offer flexibility 

Despite the lower sanctioned amount, the bullet repayment option will continue to appeal to many borrowers. “It provides immediate liquidity without the burden of monthly repayments,” says Umesh Mohanan, executive director (ED) and chief executive officer (CEO), Indel Money. 

Borrowers must, however, repay the entire principal and accumulated interest at maturity. “The large lump sum obligation at maturity increases the risk of default,” says Kumar. 

The mandatory 12-month tenure cap removes the possibility of repeatedly rolling over the loan. “A borrower must settle the entire interest before renewing the loan,” says Kumar. 

Regular servicing lowers repayment burden 

Under an EMI structure, the outstanding principal declines over time. “A borrower pays less interest over the tenure than under a comparable bullet repayment structure and avoids the large repayment obligation at maturity,” says Adhil Shetty, chief executive officer (CEO), BankBazaar. 

Regularly serviced loans can also offer a longer repayment period. “The 12-month cap does not apply to them,” says Shetty. 

Compare total borrowing cost 

The total borrowing cost is typically highest under bullet repayment. “As there is no reduction in the monthly principal for bullet repayments, the total interest outgo is generally higher than under a regular gold loan repayment,” says Santosh Agarwal, CEO, Paisabazaar. 

“The borrower pays interest on interest,” says Jyoti Prakash Gadia, managing director, Resurgent India. 

Monthly interest servicing generally costs less than bullet repayment. “Regular interest payments prevent accumulation and compounding,” says Gadia. 

Another option is interest-only repayment. “It generally costs more than EMI-based repayment,” says Harsh Vira, chief financial planner and founder, FinPro Wealth. 

EMIs are the most cost-efficient option because each instalment reduces the principal. 

“Borrowers should, however, compare the interest rate, total borrowing cost, processing and valuation charges, renewal conditions, delayed-payment penalties and auction policy before selecting a loan,” says Agarwal. 

Match repayment to cash flow 

The borrower’s cash flow pattern, and not the maximum eligible loan amount, should determine the repayment option. “Those with a regular monthly income will find EMIs more manageable. Those expecting a defined lump sum inflow may find bullet repayment more suitable. Borrowers with seasonal or periodic income may find quarterly repayments more suitable,” says Shetty. 

Loan tenure also matters. “The 12-month maturity limit restricts bullet repayment to short-duration loans,” says Gadia. Borrowers seeking a longer tenure should avoid this option. 

Gold-price risk 

Gold prices in India have corrected by 2.4 per cent over the past six months. Gold-price volatility can influence the suitability of a repayment structure. Under bullet repayment, the principal remains outstanding and unpaid interest raises the liability over time. This makes the LTV ratio more vulnerable to a sharp fall in gold prices. 

“A simultaneous fall in gold prices and rise in the loan amount can sharply increase the loan-to-value ratio,” says Gadia. The lender may then seek additional cash or gold, or ask the borrower to make a partial repayment. 

The revised norms leave bullet loan borrowers with less room to absorb a decline. “Because interest consumes a part of the collateral value upfront, borrowers have a smaller buffer against a fall in gold prices,” says Kumar. 

According to Vira, EMI-based loans reduce the outstanding principal each month and therefore lower this risk over time. Regular interest servicing also keeps the liability constant instead of allowing it to rise. “A borrower expecting volatile gold prices or having limited capacity to arrange emergency funds should prefer regular EMI or interest servicing,” says Vira. 

Which option should you go for? 

Bullet repayment suits borrowers who expect a lump-sum inflow within a year. This includes business owners awaiting receivables and individuals expecting bonus income. “It also suits agricultural borrowers and seasonal businesses that expect a large one-time cash inflow,” says Gadia. 

Monthly interest servicing suits freelancers and small businesses seeking flexible working capital. EMI-based repayment is better suited to salaried borrowers and others with stable and assured monthly cash flows. 

“Prioritise affordability and repayment certainty over the lowest immediate monthly outflow,” says Vira.

 

Tackling price correction, auction risk

 

• Borrow below the maximum eligible amount 

• Maintain an additional LTV cushion of 10–15 per cent 

• Choose bullet repayment only if funds will be available at maturity 

• Do not rely on refinancing to repay a bullet loan 

• Keep liquidity to meet margin calls 

• Monitor lender communications when gold prices fall 

• If repayment problems arise, seek restructuring, or make partial repayment before default