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Gold Loan and Factors to Consider While Obtaining a Gold Loan. Best gold loan providers with their interest rates.

Updated: Feb 5

A gold loan is a secured loan where a borrower uses their gold as collateral to obtain funds from a lender. The loan amount is determined by the value of the pledged gold, and if the borrower fails to repay, the lender can sell the gold to recover the outstanding amount.

In an unpredictable financial landscape where needs can arise suddenly, the importance of finding trustworthy and quick sources of liquidity becomes crucial. Gold loans emerge as a tried-and-true, secure avenue for addressing immediate financial needs, free from the complexities of conventional loan procedures. This blog aims to shed light on the key considerations in the realm of gold-backed financing, offering insights into the essential factors to bear in mind when securing a gold loan.


Factors to consider while obtaining a Gold loan

1. Eligibility of Borrower

Unlike other loans like a house loan or Car loan, gold loan doesn't require many conditions. One becomes eligible for a gold loan at the age of 18, and preliminary repayment capacity is verified by the lender before proving Gold Loan.

2. Credibility of lender

When opting for a gold loan, prioritize lenders with a solid reputation to safeguard your precious gold. Avoid dealing with jewelers or small shops, as they may lack regulation and pose potential risks. Certified financial institutions, like banks or reputable NBFCs, provide a safer and more reliable option. Compare interest rates and choose a lender offering favourable terms and a secure environment for your gold. Entrusting your gold to a bank ensures added safety against external threats

3. Valuation of Gold

The value of a gold loan depends on its purity, with higher purity resulting in a higher valuation. To qualify for a loan, the gold pledged must be between 18 and 24 karats. If the jewellery includes stones or other metals, these are deducted for evaluation, and the loan amount is determined solely based on the actual gold content. The Loan-to-Value (LTV) ratio sets the upper limit for a secured loan, considering the asset's market value and liquidity that is pledged as collateral.

4. Loan amount

This loan amount is determined by assessing your repayment capacity and the value of the pledged gold. Utilize the Gold Loan calculator available online to precisely determine the loan amount. Obtaining a Gold Loan is convenient with minimal documentation, setting it apart from other loans where income proof and credit history significantly influence loan amounts. To qualify for a higher loan amount, banks assess factors such as the purity, net weight, and value of the gold.

5. Tenure of the Loan

The Gold Loan provides short-term flexibility with tenures of 6 to 12 months, depending on the borrower's preference. Repayment periods range from 12 to 24 months, emphasizing the importance of considering financial obligations before application to avoid credit score repercussions.

6. Lower Rate of interest 

Gold loan interest rates are way lows compared to other types of business or personal loans. Before opting for a Gold Loan, it's crucial to compare interest rates from different banks. These rates vary and play a significant role in determining the overall cost of the loan. This careful comparison ensures you select a scheme that offers the highest loan amount at the most favorable interest rate, making your gold loan both beneficial and cost-effective.

7. Repayment process & options

In the case of low cash flow, certain institutions provide the option to avail a Gold Loan without EMI. This feature allows borrowers to settle the entire loan, including interest, at the end of the tenure—a prudent choice for those confident in maintaining financial stability. Some lenders permit payment of interest initially, followed by the principal amount at maturity. Alternatively, other financial entities may offer options for interest payments on a quarterly, annual, or semi-annual basis, with the principal due at the end of the term. There are four distinct repayment schemes, each catering to different needs:

  • Regular EMI: Suited for individuals with consistent income, enabling repayment in regular instalments covering both principal and interest

  • Partial Repayment: Ideal for freelancers, providing flexibility with no strict schedule, and allowing borrowers to make payments at their discretion.

  • Interest Only EMI: This structure necessitates repayment of the entire amount with interest either before or at maturity.

  • Full Repayment: Borrowers are exempt from making payments during the loan term, with monthly interest calculations collected at the term's end

Here is a list of some of the gold loan providers, with respective Interest rates.

Bank name

Interest rate

Processing fee

Tenure & Margin

Central Bank of India

8.45%-8.55% plus 0.55%

Personal – NIL up to March’24 else 0.5% of loan amount

Personal – 12 months; business – up to 36 months.

Margin - 25%

State Bank of India


3M: Rs. 200+GST

6M: Rs. 300+GST

12 Months Bullet Repayment Gold Loan: 0.50% of the loan amount 

Gold Loan EMI based: 0.50% of loan amount subject to minimum Rs. 500 + applicable GST.

 3 and 6 months (bullet repayment); up to 36 months EMI option.

Margin - 30%

Punjab and Sind Bank


INR 500 to INR 10,000

Up to 12 months.

Margin 25%-30%

Punjab national bank


0.30%, Nil on SGBs.

Up to 12 months on demand loans.

Margin: 25%-30%

Bank of Baroda


Nil up to loans below INR 3 lakh.

12 to 36 months.

Margin 25%

Muthoot Finance

12% to18%


6 - 12 Month

Gold Loans Can be Obtained for Various Purposes Like 

  1. Funding your new business/startups

  2. Funding your education

  3. Funding any medical emergencies

  4. Funding for other reasons like Marriage Expenses

Some Interesting Facts About the Gold Loan Market in India

  1. Indian households are estimated to hold between 24,000 and 25,000-kilogram tons of gold, accounting for up to 40% of the nation’s GDP in 2019.

  2. Rural India holds 65% of India’s total gold reserves, indicating a significant amount of gold is held in households and can potentially be utilized.

  3. Loans against gold jewellery have seen substantial growth, with the total credit amount increasing from around Rs 34,000 crore in March 2020 to nearly Rs 61,000 crore in the 2020-21 fiscal year and Rs. 74000 Crore on March 22 Fiscal

Prasanna Laxmi R., Assistant Content Manager

An MBA student specializing in Finance, driven by a keen interest in exploring the complexities of finance to navigate the business landscape.


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