What is the Procedure, Merits, and Demerits of Gold Loan?


  • Want to know everything about a gold loan before applying?
  • Just read this post that details on the application procedure, merits and demerits of a Gold Loan

Gold loan, or also known as the Loan Against Gold, is one of the suitable secured loan options that an individual can opt for in emergency times. With the help of a Gold Loan, you can get the required loan amount by submitting your gold ornaments and coins minted by banks to the lender. The loan amount will be decided based on the overall gold value. As there are several banks and financial institutions that provide gold loans, the loan amount may vary from one lender to another.

One of the most important factors due to which so many individuals opt for a Gold Loan is the affordable interest rates on the facility. This is possible because of the secured nature of this loan as you have presented the security against the loan amount in the form of gold ornaments. In this article, we will tell you about everything related to the gold loan ranging from its procedure, merits, to even its demerits. So, keep reading!

What is the Procedure for Gold Loan?

The first thing that you need to know about the gold loan is the application procedure, which is mainly divided into four parts — Gold submission, Evaluation, Documentation and Authentication. We are providing details about all these procedural constituents. Have a look!

Gold Submission

As you know by now that in order to get the gold loan, you will need to submit your gold ornaments or coins minted by the bank to the lender as the security or collateral. So, for a gold loan, having gold is the most important thing. The application process can be done via both online and offline methods. However, for submitting your gold, you will need to physically visit the branch of your lender. There is no other method for this.

Gold Evaluation

After the pledging of your gold ornaments, comes the evaluation part. When you submit the gold, the lender calculates the overall value of your gold according to the current market value. The gold value then dictates the amount of loan you will get from the lender. The higher the value of your gold will be, the higher will be the loan amount. Lenders usually give a maximum of 90% of the gold value as the loan amount. Lenders have the in-house gold evaluation process so it takes less time.

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You can also use the Gold Loan Eligibility Calculator to know the maximum loan amount you can get according to the weight and purity of the yellow metal.

Documentation Process

While applying for the gold loan, you will need to submit a definite set of documents along with your application form. Gold Loan demands minimal documentation, so it remains hassle-free for the customers. You will need to submit the following basic documents while applying for a Gold Loan.

  • Two passport-sized Photographs
  • Identify Proof – Aadhar Card/ PAN Card/ Driving Licence/ Voter ID Card
  • Address Proof – Aadhar Card/ Passport/ Electricity Bill/ Telephone Bill

Authentication and Loan Disbursal

After completing all the parts mentioned above, the bank will check all the details submitted by you in the authentication process, which will involve authenticating your documents. As soon as the authentication process is done, the loan amount will be disbursed into your savings account. So, you can see how this process can be done by anyone with the utmost ease and convenience.

What are the Merits of Gold Loan?

After knowing about the procedure to opt for the gold loan, you would want to know about the advantages of the Gold Loan because of which so many people decide to opt for this secured loan facility. If you are someone who is looking to get funds against your gold ornaments then knowing these advantages will definitely help you a lot. We are providing all these below. You can have a glance at them!

Lower Interest Rates

Everybody wants lower interest rates on their loan facility. A Gold Loan can be the most suitable option for you as this is a secured loan and, as a result, lenders charge lower interest rates. Your pledged gold will act as collateral against the loan amount. The Gold Loan interest rates range from 9% to 20% per annum, but on average, it ranges from 10% to 16% per annum.

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Moreover, you can get much lower interest rates, if you already have a good relationship with the bank. In the below table, we are providing the interest rates of the top five gold loan providers.

Gold Loan LendersInterest Rates (In Per Annum)
State Bank of India (SBI)7.50%
ICICI Bank10.00% - 19.76%
HDFC Bank9.50% - 17.55%
Muthoot Finance12.00% - 27.00%
Manappuram Finance12.00% - 29.00%

Higher Loan Amount

A gold loan helps you in getting the maximum loan amount against the pledged gold ornaments. Lenders usually decide the loan amount based on the Loan-to-value ratio (LTV). This ratio ranges from 65% to 90% in the case of a gold loan. What this ratio means is that you can get a maximum loan amount upto 90% of the overall gold value and it can be as low as 65% of the overall value.

Suppose the overall value of gold is INR 10 lakh, in that case, you can get a maximum loan amount of INR 9 lakh and a minimum loan amount of INR 6.5 lakh. You must also remember that this LTV ratio tends to vary from one lender to another.

Flexibility in Repayment

The freedom to choose the repayment method according to your convenience is another added advantage that you can get while applying for a Gold Loan facility. Repayment is an important part of any loan facility and you can choose from several gold loan repayment methods. There are mainly four repayment methods that you can see below.

  1. EMI Method – Monthly Payment for your Tenure which will consist a part of principal and interest
  2. Interest Payments at Regular Intervals – Pay the Interest amount at regular intervals – Monthly/ Quarterly/ Semi-yearly/ Yearly and pay the principal amount at the end of tenure
  3. Upfront Interest Payments – Pay the total interest payment at the start and principal amount at the end of the tenure
  4. Bullet Repayment – Pay nothing during the tenure. Instead, pay both principal and interest amount at the end of tenure

Faster Processing

If you are looking to get funds as soon as possible then a gold loan can be the best option for you as you can get the loan amount at a much faster rate as compared to other types of loans. As we told you in the procedure part that as soon as the documentation and authentication are done, the loan amount is disbursed into your account. Also, you are providing your gold assets as the security, lenders do not take much time in disbursing the loan.

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No Need for Credit History

If your loan application has been rejected multiple times due to a poor repayment history, a gold loan can be a fine option for you as lenders don’t check your credit history while giving you the loan. This is because of the security provided by you in the form of gold ornaments or coins minted by banks. A gold loan is perfect for those individuals who are looking to get a loan with lenient eligibility criteria.

What are the Demerits of Gold Loan?

So, you have seen that there are several advantages of a gold loan. But there are a few demerits of gold loans too that you should look at. We are mentioning them below. Don’t forget to check them!

You can Lose your Gold Assets

As you know that you get the loan amount against your gold assets in the form of jewellery and coins, and after the full repayment of the loan, you get your ornaments back from the lender. But there is one thing that you need to remember that, in case you don’t repay the loan amount or default, you may lose your assets as the lender can settle the loan amount by selling your ornaments.

Impact on CIBIL Score

There is no checking of your credit history while giving the loan amount, but your CIBIL score will be affected negatively if you miss your repayment. That’s why it is advised to repay the loan amount on time with whatever method you chose at the time of application. Also, timely repayments can give a boost to your credit score.