Gold Loans in India: Complete Guide
Everything about gold loans in India - eligibility, interest rates, loan-to-value ratios, repayment options, and tips to get the best deal on your gold loan.
9 min read
Gold Loans in India: Complete Guide
Gold loans are one of the most accessible and affordable forms of credit in India. By pledging your gold jewelry or coins, you can get quick funds at relatively low interest rates. This guide covers everything you need to know about gold loans.
What Is a Gold Loan?
Definition
A gold loan is a secured loan where you pledge gold jewelry or coins as collateral. The lender provides a loan amount based on the gold’s value, and you get your gold back when you repay the loan.
How It Works
Step 1: Bring gold to lender
Step 2: Gold evaluated and weighed
Step 3: Loan amount offered (based on value)
Step 4: Documentation and disbursement (often same day)
Step 5: Repay loan per chosen scheme
Step 6: Get gold back after full repayment
Key Features
| Feature | Typical Terms |
|---|---|
| Loan Amount | 75-90% of gold value |
| Interest Rate | 7-15% |
| Tenure | 3-36 months |
| Processing | Same day to 2 days |
| Minimum Gold | 10-20 grams typically |
| Maximum Loan | Up to ₹2-5 crores |
Loan-to-Value (LTV) Ratio
RBI Guidelines
Maximum LTV Allowed:
RBI caps gold loan LTV at:
- Banks: 75% of gold value
- NBFCs: 75% of gold value
Example:
Gold Value: ₹5,00,000
Maximum Loan: ₹3,75,000 (75%)
How Gold Is Valued
Valuation Formula:
Loan Amount = Weight × Purity × Gold Rate × LTV%
Example:
Gold Weight: 50 grams
Purity: 22 karat
Current Gold Rate: ₹5,000/gram (for 24k)
22k Value: 50 × (22/24) × 5,000 = ₹2,29,166
Loan at 75% LTV: ₹1,71,875
Factors Affecting Loan Amount
Gold Purity:
24 Karat: 99.9% pure - Highest value
22 Karat: 91.6% pure - Most jewelry
20 Karat: 83.3% pure - Lower value
18 Karat: 75% pure - Lowest acceptable usually
What’s Accepted:
- Gold jewelry (necklaces, bangles, earrings)
- Gold coins (bank-issued)
- Gold bars (with certification)
What’s NOT Accepted:
- Gold-plated items
- Less than 18 karat purity
- Ancestral items with embedded gems (sometimes)
- Damaged or very old gold
Interest Rates
Current Rate Ranges (2024)
| Lender Type | Rate Range |
|---|---|
| Public Banks (SBI, BOB) | 7.5-9.5% |
| Private Banks (HDFC, ICICI) | 8-11% |
| NBFCs (Muthoot, Manappuram) | 9-15% |
| Online Gold Loans | 9-14% |
Factors Affecting Your Rate
Loan Amount:
- Larger loans often get better rates
- Slab-based pricing common
Tenure:
- Shorter tenure may have different rates
- Some schemes have fixed rates
Relationship:
- Existing customers may get discounts
- Gold loan against FD can be cheaper
Comparing Effective Rates
Headline Rate vs. Effective Rate:
Example:
Loan: ₹1,00,000
Rate Quoted: 12% per annum
Tenure: 6 months
Simple Interest: ₹6,000
Reducing Balance: ~₹3,500
Processing Fee: ₹1,000
Compare total cost, not just rate.
Repayment Options
Option 1: Bullet Repayment
How It Works:
- Pay only interest monthly
- Pay entire principal at end
- No EMI burden during tenure
Example:
Loan: ₹2,00,000 at 12%
Tenure: 12 months
Monthly Interest: ₹2,000
Final Payment: ₹2,00,000
Good For: Business owners with variable cash flow
Risk: Must have lump sum at end
Option 2: Regular EMI
How It Works:
- Fixed monthly payment
- Includes principal + interest
- Like normal loan
Example:
Loan: ₹2,00,000 at 12%
Tenure: 12 months
EMI: ₹17,769
Good For: Salaried individuals
Benefit: Structured repayment
Option 3: Interest Upfront
How It Works:
- Interest deducted from loan at start
- Pay only principal at end
Example:
Loan: ₹2,00,000 at 12%
Tenure: 12 months
Interest Deducted: ₹24,000
You Receive: ₹1,76,000
Pay Back: ₹2,00,000
Good For: Short tenure loans
Note: Effective rate is higher
Option 4: Overdraft (Gold OD)
How It Works:
- Credit line against gold
- Withdraw as needed
- Pay interest only on used amount
Example:
Sanctioned: ₹5,00,000
Used: ₹2,00,000
Interest On: ₹2,00,000 only
Good For: Business needs, variable requirements
Benefit: Flexibility, pay for what you use
Application Process
Step-by-Step
Step 1: Choose Lender
Compare:
- Interest rates
- LTV offered
- Processing fees
- Branch proximity
- Customer reviews
Step 2: Visit with Gold
Carry:
- Gold items
- ID proof (Aadhaar, PAN)
- Address proof
- Passport photos
Step 3: Evaluation
Lender Will:
- Check purity (karat)
- Weigh gold
- Assess current gold rate
- Calculate loan amount
Step 4: Documentation
Sign:
- Loan agreement
- Gold pledge agreement
- KYC documents
Step 5: Disbursement
Receive:
- Cash (up to limits)
- Bank transfer
- Cheque
- Usually same day
Processing Time
| Lender Type | Typical Time |
|---|---|
| NBFCs | 30 minutes - 2 hours |
| Banks | 1-3 days |
| Online + Branch | Same day |
Costs and Charges
Processing Fee
Typical Range:
- Banks: 0.5-1%
- NBFCs: 0.5-2%
- Sometimes waived in promotions
Example:
Loan: ₹2,00,000
Processing Fee (1%): ₹2,000
Other Charges
| Charge | Typical Amount |
|---|---|
| Valuation Fee | Often included |
| Documentation | ₹100-500 |
| Late Payment | 1-2% per month |
| Foreclosure | Usually NIL |
| Gold Insurance | Often included |
No Hidden Charges Rule
RBI Requires:
- All charges disclosed upfront
- No post-sanction additions
- Clear fee structure
- Written schedule of charges
Benefits of Gold Loans
1. Quick Access to Funds
Comparison:
Personal Loan: 2-7 days
Home Loan: 2-4 weeks
Gold Loan: Same day
For Emergencies: Gold loan wins
2. Lower Interest Rates
Typical Rates:
Gold Loan: 9-12%
Personal Loan: 12-18%
Credit Card: 36-42%
Cost Savings: Significant
3. Minimal Documentation
Required:
- ID Proof
- Address Proof
- Gold
Not Required:
- Income proof
- ITR
- Employment letter
- Bank statements
4. No Credit Score Requirement
Gold loan approval based on:
- Gold's value
- Not your credit score
Good For:
- No credit history
- Low credit score
- Self-employed without ITR
5. Gold Remains Your Asset
During Loan:
- Gold safely stored by lender
- Insured against loss/theft
- Returns to you after repayment
Unlike Selling:
- Don't lose gold permanently
- Retain sentimental value
- Gold price appreciation yours
Risks and Considerations
Risk 1: Gold Price Fluctuation
Scenario:
Loan Taken: Gold value ₹5,00,000, Loan ₹3,75,000
Gold Price Drops: Gold value now ₹4,00,000, Loan still ₹3,75,000
LTV Ratio: Now 94% (exceeds 75%)
Action Required:
- Lender may ask for top-up collateral
- Or partial repayment
- Or face gold sale
Protection:
- Don't take maximum LTV
- Monitor gold prices
- Maintain repayment buffer
Risk 2: Inability to Repay
Consequence:
- Lender can auction gold
- Auction after notice period
- You lose gold permanently
Prevention:
- Borrow only what you can repay
- Have repayment plan before borrowing
- Keep emergency buffer
Risk 3: High Interest on NBFCs
Some NBFCs charge 15-24%:
- Higher than bank gold loans
- Can become expensive
- Compare before choosing
Always Compare:
- At least 3-4 lenders
- Total cost, not just rate
Risk 4: Renewal Trap
Bullet Repayment Pitfall:
Month 1-12: Pay only interest
Month 12: Can't pay principal
Solution?: "Renew" loan
Problem:
- Interest on interest accumulates
- Debt grows
- May eventually lose gold
Prevention:
- Choose EMI scheme
- Save for principal payment
- Don't depend on renewal
Gold Loan vs. Alternatives
vs. Personal Loan
| Factor | Gold Loan | Personal Loan |
|---|---|---|
| Rate | 9-12% | 12-18% |
| Processing | Same day | 2-7 days |
| Documentation | Minimal | Extensive |
| Credit Check | No | Yes |
| Collateral | Required | None |
| Amount | Based on gold | Based on income |
Choose Gold Loan If:
- Have gold, need quick funds
- Don’t want credit check
- Need lower rate
Choose Personal Loan If:
- Don’t have gold
- Don’t want to pledge assets
- Need larger amount
vs. Loan Against FD
| Factor | Gold Loan | Loan Against FD |
|---|---|---|
| Rate | 9-12% | FD Rate + 1-2% |
| Security | Gold | FD |
| Liquidity | Gold pledged | FD continues earning |
Loan Against FD Often Cheaper
vs. Selling Gold
| Factor | Gold Loan | Selling Gold |
|---|---|---|
| Gold Ownership | Retained | Lost |
| Future Price Gain | Yours | Lost |
| Sentimental Value | Preserved | Lost |
| Flexibility | Can repay and retrieve | Gone |
Sell Only If:
- Absolutely no other option
- Don’t value the specific gold
- Need permanent funds, not temporary
Best Practices
Before Taking Gold Loan
Checklist:
□ Compare at least 4-5 lenders
□ Calculate total repayment cost
□ Have clear repayment plan
□ Borrow only what needed
□ Avoid maximum LTV
□ Read all terms carefully
□ Check foreclosure charges
During Loan Tenure
Best Practices:
□ Pay on time always
□ Set up reminders/autopay
□ Don't renew without plan
□ Monitor gold prices
□ Keep loan receipt safely
□ Have gold valued periodically
After Repayment
At Closure:
□ Get gold released
□ Count and verify items
□ Get closure certificate
□ Check for any pending charges
□ Confirm loan closed in records
Choosing the Right Lender
Comparison Framework
Compare:
1. Interest rate (effective, not just headline)
2. Processing fee
3. LTV offered
4. Repayment flexibility
5. Branch/storage proximity
6. Customer service reputation
7. Gold safety measures
Top Gold Loan Providers
Banks:
- SBI Gold Loan
- HDFC Bank Gold Loan
- ICICI Bank Gold Loan
- Bank of Baroda Gold Loan
NBFCs:
- Muthoot Finance
- Manappuram Finance
- IIFL Finance
- Shriram City Union
Digital Options:
- Rupeek
- Indiagold
- Various bank apps
Bank vs. NBFC
Bank Advantages:
- Lower rates
- Perceived safety
- Regulatory oversight
NBFC Advantages:
- Faster processing
- More branches in smaller towns
- Flexible schemes
- Sometimes higher LTV (within limits)
Special Schemes
Agricultural Gold Loans
Features:
- Lower rates for farmers
- Subsidy schemes available
- Priority sector lending rates
- Through cooperative banks
Gold Loan for Business
Business Gold Loan:
- Higher amounts possible
- Business documentation may be required
- May qualify for different rates
Gold Loan Overdraft
For Regular Users:
- One-time gold pledge
- Revolving credit line
- Use as needed
- Pay interest on usage
Common Mistakes
Mistake 1: Not Comparing Lenders
Difference Can Be Significant:
Lender A: 9% interest
Lender B: 15% interest
On ₹2,00,000 for 1 year:
Cost Difference: ₹12,000
Always get 3-4 quotes.
Mistake 2: Taking Maximum LTV
Risk:
Gold Value Drops → Margin Call → Forced Repayment
Better:
Borrow 60-65% of value
Leave safety margin
Mistake 3: Repeated Renewals
Trap:
Year 1: Borrow ₹2,00,000
Pay Interest: ₹24,000
Renew
Year 2: Borrow ₹2,00,000
Pay Interest: ₹24,000
Renew
5 Years: Paid ₹1,20,000 interest, still owe ₹2,00,000
Exit Strategy: Plan repayment, not renewals.
Mistake 4: Using for Consumption
Not Ideal:
Gold loan for vacation, gadgets, lifestyle
Better:
Gold loan for business, emergency, opportunity
Reason:
You're paying interest to buy something depreciating.
Conclusion
Gold loans are a valuable financial tool when used wisely. They offer quick access to affordable credit without credit checks or extensive documentation. The key is borrowing responsibly and having a clear repayment plan.
Key Takeaways:
- Compare multiple lenders—rate differences are significant
- Don’t max out LTV—leave safety margin
- Have repayment plan—don’t depend on renewals
- Choose right scheme—EMI vs. bullet based on your cash flow
- Read all terms—understand foreclosure and charges
- Borrow for productive use—investment, business, emergency
- Get your gold back—that’s the goal
Gold loans should be a bridge to meet temporary needs, not a permanent debt burden. Use them wisely, and they’re one of the best credit tools available.
Rates and terms change frequently. Always verify current offerings directly with lenders. This guide provides general information for educational purposes.