How Gold Loan works – 3 Important Things To Know Before Applying

 There are many ways by which you can secure a loan if you’re in need of extra funds. Loans are a good way to get funding when the need arises, and even within this bracket, there are various types of loans that you can go for. One popular type of loan in India is a gold loan. 

India is a country that has abundant demand for gold because of its cultural relevance. This makes it a popular commodity to procure a loan. Let us learn, in detail, what a gold loan is and further information about gold loan.

What is a Gold Loan?


A loan against gold, or a gold loan, is a secured loan that can be borrowed from lenders like banks and NBFCs in lieu of gold jewellery or ornaments. If you’re in need of cash and have gold ornaments securely saved, you can take those to a lender and borrow a loan in exchange for your jewellery. The loan amount would be a certain percentage of the value of the gold, and once you repay the loan via EMIs, your gold articles are returned back to you. 

Unlike other secured loans like a car or home loan, a gold loan can be used for anything you need. You can use it to pay medical bills, education expenses, wedding expenses etc. 

How does a Gold Loan work?


The way a gold loan process works is quite similar to other secured loans. You can take your gold to your preferred bank or NBFC, along with all relevant Know Your Customer (KYC) documents like address proof and ID proof. The bank then evaluates the value of your gold and verifies your documents. Once your gold has been evaluated, the lender will sanction a loan amount at a decided rate of interest. Once you get the loan, you can start repaying the principal plus interest as monthly instalments. You can also choose to repay the entire loan amount along with interest by the end of the loan tenure, a facility offered by some of the banks providing gold loan.

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Things to know before applying for a gold loan

1) Understand how much money you can get


The loan amount that you’re eligible for depends on the amount of gold that you wish to take a loan against. Since the lender will have your gold, they do not require further income proof. As far as the price of gold is concerned, some lenders consider the daily price while others consider the weekly price of gold. You can avail loan amount ranging from a minimum of Rs.10,000 to a maximum of up to Rs.1 Crore. However, the loan amount threshold limit may vary from one bank to another. 

2) Try to get the best interest rates


Interest rates from the lender to the lender will always change, so try to find the best interest rate for your gold loan. Gold loan interest rates are lower than personal loans because it is a secured loan. Furthermore, banks usually charge lower interest for gold loans when compared to NBFCs. 

3) Gold loans have a short tenure


One thing that you must know about gold loan tenure is that it is usually for up to 12 months. You’ll be asked to repay the loan after that. Ensure that you pay off your gold loan on time because failing to do so would lead to auctioning off your gold.



A gold loan can come in handy if you’re short on cash but have some amount of gold lying idle. The gold loan procedure is quite simple and convenient, allowing you to quickly take care of your short-term financial needs.

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