Things you will know after reading this article:

  • What is a gold loan
  • How is it calculated
  • How to repay a gold loan
  • Eligibility
  • Benefits

In India, Gold is not just a metal, but a lot more. Gold has its ceremonial importance, it is associated with auspicious sentiments. Gold is also seen as a long life importance, it is also perceived as an appropriate gift for corporate or occasions. Gold is linked to a high emotional quotient, it also reinforces closeness of relationships.

Gold being a precious metal acts as boon during the times of financial crisis. People with low credit score use gold loan as an easy way of increasing the credit score. As far as the theory goes, loan is an amount of money borrowed by a bank or any institution and is paid back within a fixed tenure in installments, with a rate of interest applied. Gold loan is a little different, lets understand how.

What is a Gold loan?

Gold loan is a secured loan, that is availed against one’s gold ornaments, or any gold commodity. The bank attaches a lien to your gold, and it acts as a collateral for your loan. In case of a default the bank has the rights to claim the gold items. A feature that gold loans share with personal loans is that the borrower receives the fund, and is free to use it as their needs call for. However, other than this the major difference is that a personal loan is unsecured and a gold loan is always secured. The rate of interests that apply may vary according to the current rate of gold in the market.

How is Gold loan calculated?

For accurate calculation, lenders evaluate the gold item to be secured according to  gold’s purity and weight. Based on it, the gold’s ma1rket value is determined based on its current rate, which further helps in reaching the final gold amount that is to be sanctioned by lenders. Usually banks and lenders offer a gold loan with a value up to 75 percent of the pledged gold’s market value. For instance, if your gold is worth 2 lakhs, the loan amount sanctioned will be maximum up to its 75%, which is not more than 1.5 lakhs. Besides the Loan to value ratio, loan amount also depends on various other factors such as tenure and the borrower’s repayment capacity.

Repaying a gold loan:

The process of repaying a gold loan is a two way road. You can either pay the total sum of the interest by the end of the tenure, or you can also pay it through the convenient system of EMI (Equated Monthly Instalments) each month. Now we are aware of the basic whereabouts of a gold loan and its functioning, lets discuss the eligibility criteria.  

Who is eligible for a gold loan?

Applying for a gold loan is convenient, as technically anyone who owns gold can get it. A few criteria that need to be fulfilled are-

  • Citizenship- the individual applying for a loan must be a citizen of India.
  • Age- The person should be at least 18 years of age, which is legally an adult. The age group for eligibility ranges from 18 to 75 years of age.

Documents required-

IDENTITY PROOFThe bank needs to know that the individual opening an account is the citizen of India, and the document has a photograph of the person opening the account.PassportPAN cardDriving licenceRation CardBirth certificateSC/ST/OBC certificates
ADDRESS PROOFThe address of India further proves the citizenship and identity of the individual.Voter ID cardUtility billsPermanent driving licence Ration cardAadhar card
  • Signature proof- for this you need to provide the bank with KYC documents.
  • Photographs- You need to provide the bank with three recent passport sized photographs for proof of identity.

Availing a gold loan is an easy process, but why should one choose it? Here are a few benefits of it:

  • Low interest rate- since a gold loan is backed by a collateral, and is secured, it has a lower interest rate.
  • Less Hassle- applying for a gold loan requires very few documents, and is a great option for catering emergency needs.
  • Convenience of using the funds- the sum of money borrowed is free to use by the borrower according to their need. The bank does not monitor it.
  • Secured loan- the only collateral one needs is the gold itself, all other financial assets stay preserved and untouched.
  • Idle asset- the gold in your locker that sits idle in your locker can be easily brought into use when the need arises.


From the discussion, a conclusion can be drawn that using the idle gold sitting in your locker is a smart option when it comes to fulfilling the emergency needs. The process for applying for the loan is easy, hassle-free and the borrower gets maximum benefit!

About the Author

BankReed Admin

Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

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