How does a Gold Loan Work?


  • Want to know how a Gold Loan in India works?
  • Read this post that provides extensive details on all the steps involved and also about some of the top lenders providing Gold Loans

Life is full of uncertainties and tough situations. One such uncertainty happens when you are in urgent need of funds and almost all doors are closed for you. Do you know that in such critical situations, your gold jewellery can come to your rescue? Yes, it’s possible! You can get a loan amount against your gold ornaments and bank-minted gold coins. Provided by all the leading Banks and Financial Institutions of India, this facility is known as the Gold Loan.

One of the major reasons that so many people opt for a Gold Loan in India is its affordable interest rates. So, if you are someone who is facing a major financial crunch and looking to opt for a Gold Loan then this article could be perfect for you as we will be telling you about how the Gold Loans works. It will involve all the major aspects of a gold loan such as application process, evaluation, eligibility criteria, documentation, and other things. So, keep reading!

What Exactly is a Gold Loan and What are its Features?

Before knowing how a Gold Loan in India works, it is important to know exactly what a gold loan is. A gold loan is nothing but a secured loan with which you can opt for the required loan amount against your ornaments and gold coins at affordable interest rates. In the times when you need urgent funds, there are a lot of loan options that you can avail of, but due to low-interest rates, a gold loan can be the most suitable option for you. You just have to submit the gold to the lender, and according to the overall value of your gold, you will get the loan amount into your account.

The main reason behind the popularity of a gold loan in India is the secured nature as you are pledging your gold against the loan amount you are getting. So, in any case of default, the lender can sell your assets and recover the loan amount. Till the time you repay the loan amount, your gold will be kept safe in the full-proof bank vault. So, you can utilize your assets in a more organized way than keeping them idle at home.

You can look at some of the amazing features of a Gold Loan facility mentioned below.

  • With a Gold Loan, you get lower interest rates so you don’t have to worry about the repayment as the EMI amount will be a lot lower. The average interest rates range from 10% to 16% per annum. These can be much lower if you already have a smooth relationship running with the lender.
  • You can get the required loan amount within a day after the overall procedure is done. You just need to submit your gold ornaments to the lender, and after the whole authentication process is finished, you will get the loan amount into your account,
  • You can choose the repayment tenure according to your repayment capacity and convenience. The maximum tenure can be 84 months (7 years) and it can be as short as 12 months.
  • A gold loan will help you in getting the maximum loan amount that can fulfill all your financial requirements. You can get a loan amount upto a maximum of 90% and a minimum of 65% of your overall gold value. It means that if the overall value of your gold is INR 20 lakh, you can get a maximum loan amount of INR 18 lakh. The minimum can be INR 13 lakh.
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What are the Steps Involved in Getting a Gold Loan?

If we were to talk about how the Gold Loan works, it would be important to know the overall procedure of the Gold Loan. There are mainly six steps that are involved in a gold loan — Gold Loan Application, Gold Submission, Evaluation, Documentation, Authentication, and Repayment. To know more about each of these procedural steps, you can glance below.

Gold Loan Application

The first and foremost step to opt for a loan amount is to apply for the Gold Loan at a lender. There are several banks and financial institutions that provide a gold loan in India. Before applying for it, you should look and compare different lenders that provide gold loans and choose the one that suits your requirements such as lower interest rates, adequate loan-to-value ratio, flexible tenure, etc.

The application can be made via two methods — Online and Offline. For the Offline process, you will need to go to the nearest branch of your lender and fill the application form while for the online process, you just need to go to the official website of the lender and apply from there only.

Gold Submission

After filling the Gold Loan application form either via the online or offline method, you will need to submit your gold ornaments or coins minted by the lender as the security or collateral. Having Gold Jewellery is the most important thing to get a gold loan. You must remember that the gold submission cannot be done online. For submitting your gold, you will need to physically visit the branch of your respective lender. There is no other way by which you can do this step.

Gold Evaluation

Now that you have pledged your gold to your lender, the third step is the Gold Evaluation. When you submit your gold ornaments, the first thing that a lender does is to calculate the overall value of your gold. This value will be determined by the current market value of the gold through the in-house evaluation process of the lender. This evaluation process will decide how much loan amount you will get against your gold ornaments. The higher the value of your gold, the higher will be your loan amount. As we told before, you can get a maximum of 90% of the gold value as the loan amount.

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There is also one other method by which you can know the Eligible Gold Loan Amount — by using the Gold Loan Eligibility Calculator. Just feed a few details such as weight and purity of your gold and you will get the maximum gold loan amount.

Documentation Process

After the evaluation process is completed, the next step is the Documentation in which you will have to submit a definite set of documents to the lender. One of the main features of the gold loan is the minimal documentation unlike the tiring documentation process of other loans. You can look at the set of required documents below.

  • Two Recent passport-sized Photographs
  • Identify Proof – Aadhar Card/ PAN Card/ Driving Licence/ Voter ID Card
  • Address Proof – Passport/ Electricity Bill/ Telephone Bill/ Aadhar Card
  • Receipt of your Gold (if asked by the lender)

Eligibility, Authentication and Disbursal

After all the above-mentioned steps are completed, the lender will check your eligibility. Each lender has a different set of conditions that an applicant has to fulfill. These conditions are generally related to the applicant’s age and the purity of gold ornaments. An applicant with a low CIBIL score can also apply for a Gold Loan without any fear of rejection. The lender will authenticate all your details submitted and also the validity of your documents to validate your candidature. As soon as the authentication process is done, the loan amount will be disbursed into your account.

Gold Loan Repayment

Technically, authentication is the last step to apply for a gold loan, but since we are telling you how a gold loan works, it is important to know about the most important aspect of the Gold Loan which is repayment. A lot of individuals apply for a gold loan because of the flexibility they enjoy in the Gold Loan Repayment. Lenders provide you the option to choose from mainly four repayment methods. You can have a look at all of them below.

  1. EMI Payment – Pay monthly installment during your tenure which will consist of both principal and interest. You can calculate this with the Gold Loan EMI Calculator.
  2. Advance Interest Payments – Pay full interest payment upfront and principal amount at the end of the tenure
  3. Interest Payments at Regular Intervals – Pay only the interest amount at regular intervals of Monthly/ Quarterly/ Semi-yearly/ Yearly and pay the principal amount at the end of your tenure
  4. Bullet Repayment – Freedom to pay not a single rupee during the tenure. Pay both principal and interest amount at the end of the tenure

So, these are the steps that are involved in the overall gold loan procedure. After knowing these, you won’t face any difficulty in applying for a gold loan.

Top Lenders that Provide a Gold Loan

Now, after knowing how a Gold Loan works, you may want to apply for one. So, we are mentioning some of the top lenders that provide gold loans in India. Check them out!

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State Bank of India (SBI) Gold Loan

Rate of Interest – 7.50% per annum

State Bank of India (SBI) is undoubtedly one of the leading public sector banks in India. If your required amount falls below INR 20 lakh then this Gold Loan from SBI can be a good choice for you. With several repayment options at your disposal and affordable interest rates, you can easily repay the loan amount without putting much pressure on your monthly budget. SBI Gold Loan has a number of schemes from which you can choose the one according to your repayment capacity and convenience.

Muthoot Finance Gold Loan

Rate of Interest – 12.00% - 27.00% per annum

Well, you must have heard the name of Muthoot Finance as it is hugely popular among the gold loan lenders. Muthoot Finance can be the best option for you as it provides you the opportunity to choose a scheme from its five different schemes. These schemes are Blue Guide, Blue Bright, Blue Power, Blue Big, and Blue Smart Gold Loans. You should compare the loan eligibility, interest rates and tenure of these schemes before finalizing the one that is best to your cause.

Bank of Baroda Gold Loan

Interest Rate – 7.45% - 8.20% per annum

If you have gold ornaments at your disposal and are looking to opt for a loan amount upto INR 25 lakh at affordable interest rates, Bank of Baroda Gold Loan could be a perfect choice for you! There is one thing that you need to keep in mind that the repayment period is fixed at a maximum of 12 months, so you should opt for the loan amount according to your repayment capacity. Missing repayments can affect your credit score negatively.

Manappuram Finance Gold Loan

Rate of Interest – 12.00% - 29.00% per annum

Manappuram is one of the leading financial institutions that provide seamless gold loan facility to needy customers. Manappuram provides gold loan amounts that can be as low as INR 5,000 to as high as INR 1.5 crore. The final loan amount will depend on the overall value of gold ornaments submitted by you. The tenure is fixed at a maximum of 365 days (1 year) that can be as short as 90 days (3 months).

ICICI Bank Gold Loan

Rate of Interest – 10.00% - 19.76% per annum

Provided by one of the leading private banks of India, ICICI Bank Gold Loan can be availed by any individual who wants to opt for a loan amount upto INR 15 lakh. You just need to submit the gold jewellery to get the loan amount. ICICI Bank also provides the Bullet Repayment Method through which you can easily pay the principal and interest amount at the end of tenure which ranges from 3 to 12 months.