Beginners Guide to buy a Gold Loan

Beginners Guide to buy a Gold Loan

Gold Loan is the best way of borrowing money by using your gold items as collateral. Nowadays many banks have started loaning money through this scheme.

What is a gold loan?

It is a secured loan, where individuals have to pledge their gold ornaments, pieces, or coins to get funds. However, banks will charge an interest rate if you repay the loan amount after some time. You’ll have to pay a 7%-13% interest rate every month along with the EMI amount. It is the best way if you’re looking to get funds immediately. A lot of banks, private institutions, and NBFCs (Non-Banking Financial Companies) provide the facility of gold loans.

You can quickly get the loan amount disbursed within 1-2 hours of submitting the application form. The entire loan process is speedy and hassle-free. Applying for a gold loan can help customers in the long run.

Advantages of gold loan

  1. Flexibility: Banks don’t monitor the funds given through gold loans. So customers can freely use it for various purposes at the same time. Banks won’t check the end usage of the fund. However, you can use the funds you get from a gold loan for any illegal activities.
  2. Documentation:- The entire documentation process of a gold loan is very quick and hassle-free. You just have to submit the application form along with some basic KYC documents like Aadhar Card, Pan Card, Utility Bills, etc.
  3. Credit Score: If you’re someone who has a bad credit score, then you can use a gold loan as an opportunity to increase your credit score. For this, you’ll have to repay the loan amount on time, and your credit history and repayment will automatically increase.
  4. Repayment:- Banks give customers the flexibility to choose a loan repayment structure and tenure according to their budget, income, and repayment capacity. So you can calculate your expenses and then choose the right repayment structure for you.
  5. Processing fee:- The loan is processed within a few hours, so banks don’t charge you a processing fee. You save a lot of money in a gold loan that could’ve been paid as charges.

Gold loan eligibility

Age:- 18-64 Years

Profession:- Trader, Farmers, Professor, Salaried, Self-employed, Unemployment, Housewife, etc.

Gold form accepted by the banks: Gold ornaments, coins, or pieces. Banks don’t accept gold bullion or bars.

Identity proof: Aadhar Card, Pan Card, Passport, Driving License, or Voter ID Card.

Address proof:- Electricity Bill, Water Bill, Telephone Bill, Postpaid Bills, etc.

Essential components of gold loan

  1. Loan Amount:- The basic rule of smart borrowing is to not take more money than required. So always decide the money you’ll be borrowing beforehand because you’ll have to repay this amount along with the interest rate.
  2. LTV Rate:- It is the percentage of your gold loan per gram that you’ll get as the loan amount. A lot of lenders offer gold loans at 75%-80% LTV rates. The LTV rate usually differs from one bank to another. No bank/lender will offer gold loans at a 100% LTV rate.
  3. Weight and purity:- Banks only accept gold ornaments, coins, and pieces for gold loans. Any other gold form like bars, utensils, or biscuits is not acceptable. The minimum purity rate required should be 18 karats to 22 karats. Any extra stones or diamonds in your ornament will not be included. So banks will only measure the weight of actual gold in your ornament.

Gold loan procedure

You can apply for a gold loan facility using both online and offline methods. The entire idea of a gold loan is straightforward – you just have to pledge your gold ornament to get the loan amount. So firstly, you’ll have to fill the application form and attach all the essential KYC documents required by the bank once the documentation process is completed.

After that, banks will measure the purity and weight of your gold to decide the loan amount. You’ll have to then agree to all the terms and conditions regarding repayment, interest rate, and gold loan. And after it is done, the bank will disburse the loan amount to your bank account within 30 minutes.

A lot of banks like SBI gold loan, Axis Bank, ICICI Bank, etc., will ask you to register yourselves online, so you can easily track your repayment and application process.

Ways to repay your gold loan

Banks provide customers with the complete flexibility to choose a repayment structure according to their capacity. There are primarily four repayment options that every bank will give. These are mentioned below:

  1. EMIs:- In this option, you’ll have to repay the loan amount in easy EMIs. You’ll have to pay EMIs until your entire loan amount is paid off. For example:- If you’re taking a loan of INR 40,000 and the interest rate is 7% with a loan tenure of 12 months, then you’ll have to pay INR 3,461 every month for 12 months.
  2. Partial Payment:- This option allows you to repay the partial principal amount at an initial stage and the rest at the end of the loan tenure. This will help you save a lot of money because you’ve paid 50% of the loan amount, so you won’t have to pay the interest rate.
  3. Only Interest EMI:- In this option, you’ll have to repay the interest amount as EMI every month. And at the end of loan tenure, the borrower has to repay the entire principal amount.
  4. Bullet repayment:- In this type, the borrower has to repay the entire principal amount and the interest rate at the end of the loan tenure.


There are a lot of banks and NBFCs that provide the facility of a gold loan. So it’s important to compare all the options available and then choose an ideal gold loan option according to your repayment capacity.


Shankar is a tech blogger who occasionally enjoys penning historical fiction. With over a thousand articles written on tech, business, finance, marketing, mobile, social media, cloud storage, software, and general topics, he has been creating material for the past eight years.

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