Things You Want to Know Before Taking a Gold Loan

According to a recent estimate by the World Gold Council there is around 18,000 tonnes of gold lying with individuals in India. And if you thought that all of it was with the rich you'd be surprised because as much as 65% of India's gold lies with people in rural areas. With gold loans too small individual players have superseded those in the big cities to leverage their possession of gold jewelry to avail quick loans for businesses. Till a few years back gold loans were the last resort for borrowers but the scene is fast changing with more jewelry owners viewing it as an asset to get smart loans. With the entry of NBFCs in the picture loan against gold has become all the more popular.

Gold loans- a better option

Gold loans are a better substitute for personal loans. All you need to have to avail the loan is gold jewelry that you're willing to pledge. Gold loans can be used for the same purposes you take a personal loan for, like an emergency, wedding or the big festival purchases.

Interest rate charged on a gold loan is around 6-8% lesser than that charged on personal loans of the same amount. That's because the lender gets to keep your gold as security until you pay back unlike a personal loan where no security is kept. Another good thing is that the time of processing is very less in a gold loan. NBFCs may offer you loan in 30 minutes while with banks the procedure may take a few hours. NBFCs do not charge processing fee on the loan. Banks may charge a small fee but you can try negotiating to do away with it. A big hurdle for many people to avail gold loan is emotional attachment with their ornaments. If that can be kept aside you'll see that on all counts a gold loan is superior to a personal loan.

How to get gold loan

Gold loans can be availed at NBFCs, private sector banks, public sector banks and co-operative banks. Many private banks and nationalized banks offer gold loan. Muthoot Finance, Manappuram and Karvy Finance are the 3 NBFCs playing the game. Banks offer gold loans for lesser interest rate than NBFCs do.

Having an account with the bank is not a requirement except for co-operative banks who might require you to become a member, charges for which is as low as Rs 5 and all you need to produce is the ration card. Co-operative banks may take a day to process the loan. As you submit your ornaments it is quickly verified for purity and weight. Valuation is easier and truer for Hallmarked jewelry. The loan amount depends on weight, purity and market price of gold.

The RBI does not have tight policies for gold loans yet. The loan-to-value, which is the amount of loan sanctioned for the gold you deposit ranges from 60% to 85% for different lenders. Banks lend up to 85% the value but NBFCs can lend only up to 60%. Each lender fixes their rate for gold based on the prevailing market rate. It does not imply that the market rate for the day is applicable instead they may choose the average rate over a period, say 90 days.

KYC requirements include photo id proof, signature proof and address proof along with the loan application and pass port size photo. The loan tenure varies across lenders but most gold loans are of 3-6 months duration. Lending amount starts from Rs 25,000 to the value of your gold up to Rs 10 lakh (or even higher).

Repaying gold loan

Lenders do not fix EMIs but you will be required to commit to make certain minimum payments regularly.You can customize your gold loan for a convenient duration between 3 months and 12 months. Penalty fee for defaulting on gold loan is very high.

Although most lenders do not do a past credit history check, they may start doing it someday soon. If you've defaulted on a loan previously seek gold loan with another lender than the previous one unless you want them to keep the jewelry till you pack back every paisa of what was due earlier.


Gold loan is a better alternative to personal loans if you have gold jewelry to pledge. With gold loans private individual lenders should not even be last on the list. Take a loan only if you're sure your financial situations guarantee that you can pay back the interest and principal in due time.

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