Business News

Gold Loans and how They Work

A gold loan, also known as a loan against gold, is a secured loan that allows borrowers to obtain funds by pledging their gold ornaments or jewelry as collateral. This financial product is widely popular in India, where gold holds significant cultural and economic value. Here’s a detailed exploration of how gold loans work, eligibility criteria, interest rates, tenure, loan amount determination, and repayment options.

What is a Gold Loan?

A gold loan is a secured loan where borrowers pledge their gold as security. This is usually gold bullion or family heirlooms. a lender in exchange for a loan amount (LVR). The loan sanctioned is typically a percentage of the gold’s market value. Unlike other secured loans such as home loans or car loans, there are no restrictions on how the loan amount can be utilized. This flexibility makes it ideal for addressing various financial needs, including emergencies like medical expenses, education costs, or business investments.

How Does a Gold Loan Work?

The process is pretty straight straightforward, see the following steps in how to get a gold loan.

  1. Pledge Your Gold: You bring your gold items to the lender along with necessary documents (ID proof, address proof, etc.).
  2. Evaluation: The lender tests and assesses the purity and weight of the gold items to determine their market value based on current spot prices.
  3. Loan Disbursement: Based on current market value, the lender executes the loan amount. Typically, lenders offer up to 75% of the gold’s market value as a loan.
  4. Loan Agreement: You agree to the terms and conditions, including repayment schedule and the lenders interest rates.
  5. Repayment: Most gold loans aren’t a fixed term. You pay only the monthly interest charge and the principal when you are ready to collect your gold items.
  6. Retrieving your gold Upon complete repayment on the principal, the pledged gold items are returned to you.

Eligibility for a Gold Loan

Anyone who owns gold ornaments can apply for a gold loan. Unlike personal loans that often require a good credit score and income proof, gold loans are accessible to a wider range of individuals, including salaried professionals, businessmen, housewives, and farmers. Even those with a low credit score can avail funds against their gold assets.

Interest Rates on Gold Loans

By pledging gold as security to the lender. The lender will offer a lower interest rate then loans which are unsecured. This is due to lower risk to the lender. The interest rates can vary between lenders and depend on factors such as loan amount, tenure, and the lender’s policies.

Tenure of Gold Loans

The tenure for gold loans varies from lender to lender, usually ranging from 3 months to 12 months. Some lenders may offer longer tenures or allow renewals, depending on the borrower’s repayment history and the lender’s policies. It’s important to repay the loan within the agreed tenure to avoid losing your pledged gold.

Loan Amount Determination

The loan amount pledged is primarily determined by the gold’s purity and weight. Bullion typically gets you a higher amount then gold jewellery. Lenders calculate the loan amount based on the current market value of gold and typically offer loans up to 75% of the gold’s value. Other factors such as the borrower’s repayment capacity and loan tenure also influence the loan amount.

Repayment Options

Gold loans offer flexible repayment options with monthly terms. All you have to do is make monthly interest Payments and settle the principal amount at the end of the tenure.


In conclusion, a gold loan provides a convenient and quick financial solution for individuals holding gold assets. With minimal eligibility requirements, competitive interest rates, and flexible repayment options, it remains a popular choice for meeting immediate funding needs across various segments of society in India. Whether for personal emergencies or planned expenditures, a gold loan offers a secure and efficient way to leverage one’s gold assets while retaining ownership and value.