Gold Loans in India: How They Work and What to Check
How much you can borrow against gold, what the lender looks at, and the costs and risks to understand before you pledge your jewellery.
A gold loan lets you borrow money against gold jewellery that you already own. The lender keeps the gold safe until you repay. Because the loan is secured, approvals are quick and the paperwork is light, which is why gold loans are popular for urgent needs. They are also easy to misjudge, so it helps to understand what you are signing.
How the amount is decided
The lender values your gold using the day's rate and the purity of the pieces. It then lends only a share of that value, known as the loan-to-value (LTV) ratio. The share is capped by the Reserve Bank of India, and a figure around 75% of the gold's value is common, though the permitted ratio can be higher for smaller loans. Ask your lender what applies to you.
A rough guide: the pure gold in your jewellery (weight × purity) multiplied by the rate gives the value, and the LTV applies to that. Stones and non-gold parts are usually not counted. Try it with our gold loan calculator.
Costs to compare
- Interest rate, and whether it is calculated on the reducing balance.
- Processing and valuation fees.
- Repayment style. Some loans take interest monthly, some at the end, and some as EMIs. The total cost can differ even at the same stated rate.
- Prepayment or foreclosure charges.
The risk to understand
If you do not repay, the lender can sell your gold to recover the dues. Gold prices also move. If the price falls sharply, the loan can become large compared with the value of the gold, and you may be asked to repay part of it or add security. Borrow only an amount you are confident you can repay.
Before you pledge
- Check the lender is a bank or a registered non-banking finance company.
- Ask for a written valuation of your gold, including the purity they measured.
- Get the full cost in rupees, not only the rate.
- Ask how and where the gold will be stored and whether it is insured.
- Keep every receipt, and collect your gold promptly after repaying, with a written release.
Frequently asked questions
How much loan can I get on 10 grams of gold?
It depends on the day's rate, the purity and the lender's LTV. As an example, 10 grams of 22K gold is worth about 9.16 grams of pure gold at the day's rate, and the lender lends a share of that value.
Does the gold rate affect my gold loan?
Yes. The amount you can borrow is based on the day's rate. If the price falls a lot after you borrow, the loan can become large compared with the gold's value.
Is my gold safe with the lender?
Banks and registered finance companies store pledged gold in secured vaults, but practices vary. Ask about storage and insurance, and get a written receipt listing every item.