Beginner’s Guide to Gold Loans

Pledging gold to get loans has become a common practice in India. People pledge their gold jewelry either with NBFCs or banks to get the funds instantly. Getting a loan against gold is very easy and hassle-free nowadays. You can apply it online by following simple steps. But, as with all loans, complete knowledge is necessary before entering into a financial agreement. So, here, we are unravelling the nitty-gritty associated with the gold loan so that you make an informed choice whenever you go scouting for this loan.

Who is eligible to apply for a gold loan?

To be eligible for a gold loan, you need to fall within the below-mentioned criteria:

  • Nature of employment: Either a Salaried, Self-Employed Professional, Businessman, Farmer, or Trader.
  • Age limit: To get a gold loan, your age limit should be in between 21 and 60 years.

What documents do I need to apply for gold loans?

As compared to other financing options, the documents required to avail gold loans are minimal. In such loans, you would need a set of certain basic documents which are mentioned as below:

Identity Proof (Any one of the below):

  • PAN card
  • Aadhaar card

Current Address Proof (Any one of the below):

  • Aadhaar Card
  • Postpaid Bill/Landline Bill/ Water Bill/ Electricity Bill
  • Address Updated in Bank statement/Bank Passbook
  • Driving License
  • Voter ID
  • Passport
  • Rent Agreement (With Latest Owner's Electricity Bill)
  • Gas Bond Paper with the latest receipt
  • Credit Card Statement

Documents required for gold loan balance transfer:

  • Pledge card of the loan (It is a document which is taken from a customer at the time of doing a balance transfer. It states loan application number, the quantity of loan, lock-in period, and the loan amount)
  • One cancelled cheque (Any account)

What type of gold do you need to pledge?

Only jewelry form of gold is acceptable by the gold loan companies or financial institutions. Any other form of gold such as coins/bars/biscuits or utensils are not accepted. Also, remember, the higher the purity of gold, the higher will be the valuation and the loan amount. The purity of the gold should range between 18-22 karats or above. If the jewelry you are pledging is studded with gems or stones it will not be considered for valuation, only the gold's value will be considered.

What are the interest rates for gold loans?

As gold loans are backed by your gold assets, the rate of interest charged on such loans is comparatively lesser. The rate of interest for the different loan amount is given below:

If you opt for monthly repayment, the rate of interest charged in that case is given below:

Loan Amount Rate of Interest
20k to 25k 1.65% per month
25k to 5 Lacs 1.33% per month
5 Lacs Above 0.89% per month

In the case of One-shot repayment, the rate of interest charged is 1.58%.

What is the tenure in case of gold loans?

The tenure for gold loans is of 6 months and it will be renewed for another 6 months without any renewal charges. Since the tenure on gold loans is short, you must be sure of being able to repay the loan back on time. You may lose your pledged gold if you fail to repay it within the stipulated time.

How much loan amount can I get?

Lenders decide the loan amount after checking the weight and purity of your gold. They do the LTV Calculation which is known as ‘Loan to Value Ratio’. Most of the lenders offer loans with a value of up to 75%-77% of the pledged gold’s market value. Moreover, RBI has also set the loan-to-value (LTV) ratio for gold loans at 75% and has directed all the financial institutions and gold loan NBFCs to lend at this LTV ratio. For example, if your Gold’s value is Rs 1 lakh, the loan amount that a lender can sanction you cannot be more than Rs. 75,000.

How can you repay a gold loan?

In gold loans, borrowers are offered multiple repayment options. There are four repayment methods to repay the loan amount. These are given as under:

  • Regular EMIs: This option allows borrowers to pay off their loan in easy EMIs, which will include both interest and principal amount.
  • Partial repayment: In this option, borrowers can repay the interest as well as principal amount as per their convenience and affordability. This method will help them to save a lot of interest.
  • Only interest EMI: In this type of method, borrowers can choose to pay only the interest during the loan tenure and pay off the whole principal amount at the end of the tenure when the loan matures.
  • Bullet repayment: As per this repayment structure, borrowers need to repay the entire loan amount along with the interest as well as the principal amount at the end of the loan tenure only.

How long does it take to sanction a gold loan?

The process of applying for gold is fast and simple. If you have all the necessary documents in place and you meet the lender's eligibility criteria, you can get your loan in a day only.

Whom should you approach for taking a gold loan: Bank or an NBFC?

As both banks and NBFCs offer gold loans, you may find it difficult whether to choose a bank or an NBFC to avail of the loan. It all depends on your needs and requirements. If you are looking for features such as repayment flexibility or need cash against the gold that too within less time, then choosing NBFC would be a wise option. As NBFC can disburse gold loans only up to Rs 20,000 in the form of cash as per RBI guidelines.

As banks usually come up with a lengthy documentation process that makes loan disbursal a time-taking process. Secondly, Banks do not pay in cash for the loan amount sanctioned by them. All the sanctioned loan amount is transferred to the borrower's bank account either by the way of cheque or account transfer or NEFT/RTGS as desired by the borrower. The cash option works well when you need a small amount of money.

Essential Do’s and Don'ts while applying for a gold loan


  • Compare multiple lenders and look for best offers- Not all lenders offer the same product features. So, try to choose a lender that offers you a low rate of interest.
  • Check if the lender is credible- Since you are entrusting them with your gold, opt for reputed lenders or NBFCs only while availing a gold loan.
  • Check the cost associated with your loan- Before availing a gold loan, you must check all the necessary charges associated with your loan such as processing fee, prepayment penalty or any sort of hidden charges to avoid the nasty surprise later on.


  • Do not compare just the loan amount or the EMI cost- Look at the other charges and clauses too. Also, compare the total cost of your loan and pick best one as per your requirement.
  • Do not forget to calculate the gold loan EMI thoroughly- Not calculating your gold loan EMIs in advance can cost you more. So, you should always use a gold loan EMI calculator before availing a gold loan. It will help you to know whether you can afford the loan or not.
  • Do not apply for a higher loan amount than required- Applying for an amount higher than your eligibility may lead to rejection of your loan application. So, before availing a gold loan, always check your eligibility first and then apply, else you could lose your gold assets which you have pledged with your lender if you cannot repay on time.