How Gold Loan works

Last Updated: 15 Oct 2024

In India, gold has changed from being a valuable metal used to create exquisite jewellery to becoming one of the most well-liked investment options. Furthermore, a Gold Loan can be used to meet your needs when you require money right away for a medical emergency, unforeseen expense, or business need.

The gold loan may be your best financial option if you have unused gold in your safe but a low credit score. With gold loans becoming more and more popular every year, it’s critical to understand not just what they are but also how they operate, their interest rates, and other relevant information. How does a Gold Loan operate then?

Definition of gold loan

The term “gold loan,” also known as “a loan against gold,” refers to a secured loan that a borrower accepts from a lender in place of gold jewellery or other items. Lenders typically approve you for a loan in an amount that corresponds to a particular portion of the gold’s value. You can receive your gold items back after paying the loan amount back in monthly installments.

As the loan is secured there is no restriction on how one can spend the loan amount which is usually the case in other types of loans such as home loans and car loans. Many commercial and nationalized banks, as well as NBFCs, provide gold loans at competitive interest rates.

How a gold loan operates

The entire gold loan process is very comparable to other secured loans. In this scenario, you deliver your gold items and the necessary paperwork to a lender. The lender assesses the gold items and examines the submitted paperwork. The lender approves the loan amount based on the evaluations. According to the terms of the loan, you are returned the gold items that were pledged after paying off the principal and interest.

The type of gold that is accepted is another crucial aspect of how a gold loan operates that you must be aware of. The majority of banks only accept gold jewellery. Moreover, the gold quality offered as collateral should range from 18K to 22K.

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Most banks typically offer gold loans for a maximum loan to value ratio of 75% of the gold’s current market price. Hence, the most you may borrow is 75,000 if you end up mortgaging gold valued at 100,000.