What are Gold loans and how does it work?

What are Gold loans and how does it work?
4 min read

Over the years, gold has evolved from being a tag of prosperity to serving as a financial cushion in case of unplanned business or personal expenses and planned progression. Besides being a safe investment tool, gold has been the go-to option for many to fight inflation or overcome sudden financial crises. Leveraging this value of gold is now easier than ever with gold loans. What is it, and how does it work? Let's find out.

What is a gold loan?

A gold loan is a secure credit option where individuals pledge their gold jewellery to obtain substantial funds. It provides an attractive interest rate and flexible tenor, making it a borrower-friendly and affordable financing option. Unlike other secured loans, there are no end-use restrictions. The gold loan process involves submitting gold items and relevant documents for evaluation by the lender, who then sanctions the loan amount based on their assessment. With minimal documentation and hassle-free disbursal, a gold loan is convenient for accessing funds against valuable assets.

What is the interest rate and tenure?

Gold loans, being secured, typically have lower interest rates. The rates vary among lenders based on loan term, size, and whether it's obtained from a bank or NBFC. Generally, banks offer lower interest rates on gold loans compared to NBFCs. When applying for a gold loan, exploring multiple offers is advisable instead of accepting the first one.

Loan tenure also varies, with options for renewal. However, defaulting may lead to a permanent loss of gold. Loan terms are shorter than other types of loans, typically spanning 3 to 12 months with options of extension per the lender's policy

How does gold loan work?

A loan against gold follows a unique working principle. Here's a summary:

  1. Application: You have the option to either apply online or offline. To apply online, begin by filling in the necessary details and loan amount, after which the lender's representative contacts you to proceed. You can follow offline procedures and visit the nearest branch to proceed.
  2. Gold Evaluation: Lenders evaluate the purity and weight of the gold ornaments, typically accepting 18 carats or higher. Based on this evaluation and RBI's loan-to-value (LTV) ratio cap of 90%, the lender determines the eligible loan amount. You can check with a gold loan calculator to assess repayment liability.
  3. Eligibility and Documentation: Gold loans have relaxed eligibility and documentation requirements. The applicant should be aged 21-70, and they should provide any one of the mentioned documents for each proof-
  1. Identity proof- PAN card, Aadhar card 
  2. Current address proof- Aadhar card, Passport, electricity bill copy, Voter ID, Rent Agreement
  1. Credit Approval: The credit approval process begins after evaluating gold articles, documentation, and signing the loan agreement. The desired loan amount is then disbursed to your registered account. The entire process, from application to disbursal, takes just a few hours.
  2. Flexible Repayment: You have flexible repayment options for your gold loan. Options include equal monthly installments for principal and interest, interest-only EMIs with the principal paid at the end, partial repayments as funds allow, or bullet repayment, where you pay the entire due amount in the end.


Gold loans offer an excellent solution for immediate cash needs, as they are cheaper and require minimal documentation. The simple eligibility criteria make them a preferred choice compared to other loans, leading to increased demand. With high gold prices, you can easily access substantial amounts to fulfill diverse requirements.

Tam Nimoy 2
Joined: 3 months ago
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