A gold loan is one of India's fastest, most accessible loans: pledge your gold, get funds the same day, reclaim the gold when you repay. Here's how it really works.
How it works
You pledge gold jewellery or coins with a bank or NBFC. They assess its weight and purity, lend against its value, and store it securely. Repay as agreed and you get your gold back. Because it's secured, approval barely depends on your credit score — useful if your score is thin or low.
Loan-to-value (LTV)
Lenders can lend only up to a capped percentage of the gold's value (the RBI-set LTV ceiling). So the loan you get is roughly:
Loan ≈ (gold weight × purity-adjusted per-gram rate) × LTV%
You won't get 100% of the gold's market value — the gap is the lender's safety margin against price swings.
How the per-gram rate is set
- Based on the prevailing gold price, adjusted for purity (22K fetches more per gram than 18K).
- Only the gold content counts — gemstones and the making aren't valued.
- Rates refresh with the market, so the same jewellery fetches different amounts on different days.
Repayment options
Gold loans are flexible:
- Regular EMI (principal + interest)
- Interest-only during the tenure, principal at the end
- Bullet repayment — everything at maturity
- Pay interest periodically to keep the loan healthy
The risk to understand
If you don't repay, the lender can auction the pledged gold to recover dues, after due notice. Falling gold prices can also trigger a top-up demand if your loan breaches the LTV. Treat it as a real obligation, not "free" money against jewellery.
Gold loan vs personal loan
| Gold loan | Personal loan | |
|---|---|---|
| Security | Your gold | Unsecured |
| Rate | Usually lower | Usually higher |
| Score dependence | Low | High |
| Speed | Very fast | Fast |
| Risk | Lose the gold on default | Credit-score damage |
For a short-term need where you hold idle gold, a gold loan is often cheaper than an unsecured personal loan. Compare the APR and total cost either way, and borrow only from a regulated lender that stores your gold safely and insured.