What Are Gold Loans and How Do They Work

Learn all about gold loans and get up to Rs. 2 crore to manage your expenses better.
What Are Gold Loans and How Do They Work
2 min read
12 October 2023

In India, gold has a high cultural value. It is not just because of its beauty or status symbol that the metal is valued. It is also because gold can serve as collateral for a loan, making it a valuable resource during financial emergencies.

Owing to the equity of gold and other associated factors, the demand for funds against this metal has witnessed a rise. This rise is accredited to the economic downturn due to the pandemic.
Therefore, to maximise this credit option's benefits, you need to have a clear idea about the gold loan process and how they function in the country.

What is a gold loan?

A gold loan is a secured credit option, where you can pledge your gold jewellery items to obtain substantial funds against it. This credit facility allows you to pledge your high-value asset as collateral and reclaim it once the repayment is made.

Unlike other secured loans, gold loans do not have any end-use restrictions. The interest rates on a gold loan can vary depending on the lender and their specified eligibility parameters. Though the interest rates for the gold loan are comparatively lower than its unsecured counterparts.

Additionally, facilities like attractive gold loan rate per gram, minimal documentation, multiple repayment tenures and hassle-free disbursal, makes gold loans a reliable source of instant finance.

How does a gold loan work?

A loan against gold is a unique credit option because of its working principle. Here is how gold loan works:

  • Online application
    To apply for a gold loan, you just need to fill out an online application form. You need to provide all the necessary details in the form and submit. Or if it suits you better, you can also visit the nearest gold loan branch of to avail of the loan offline.

  • Evaluation of gold
    This is where the gold loan process is different from that of other financial products. After applying for credit, the gold pledged as collateral will be evaluated using the state-of-the-art karat metres to assess its purity and weight, considering the prevailing gold price. Based on this evaluation, we determine the exact loan amount that an individual is eligible for.

    Here, you must note that RBI has capped the LTV ratio of a gold loan up to 75%. Lenders extend the loan amount to the applicant based on the evaluation and market price of pledged gold. Currently, Bajaj Finance only accepts gold jewellery worth 18-22 karats as a collateral against the loan. In this regard, you can use a gold loan calculator beforehand to assess repayment liability. This online tool displays accurate results within seconds and allows you to plan and manage your finances efficiently.

  • Eligibility and documentation
    The next step on how this credit facility works is the eligibility and documentation. Being a secured credit option, gold loans do not impose strict eligibility and documentation. However, you need to be an Indian citizen, aged between 21 and 70 years, to avail of this loan. You would also need to provide your basic KYC document and address proof to complete the verification process.
  • Credit approval
    After evaluating gold articles, documentation and signing of a loan agreement, the credit disbursal process begins. Finally, borrowers will receive their desired loan amount into their registered account. The entire gold loan process from application to disbursal takes a few hours to complete and ensures a hassle-free loaning procedure.

What type of gold jewellery can you submit as collateral?

Irrespective of your employment status, you can qualify for this credit if you possess gold jewellery to obtain funds against it.

However, one must note that this credit facility is available only against pure and fine gold jewellery. Therefore, gold bars and coins will not be accepted as collateral for disbursing the loan amount.

With Bajaj Finserv Gold Loan, you get the benefit of flexible repayment options. In this case, you can pay the interest either monthly or quarterly and repay the principal and pending interest, if any, at the time of loan maturity.

Thus, the demand for this credit has significantly increased due to a hassle-free gold loan process and exclusive features. This trend will continue as gold prices are higher, allowing borrowers to avail themselves of a sizeable amount to meet varied requirements.

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Frequently asked questions

How do lenders determine the gold loan amount?

Lenders determine the gold loan amount based on the value and purity of the gold you provide as collateral. At Bajaj Finance, we assess the gold's weight and purity, and then offer a loan amount as a percentage of the gold's value. The higher the gold's purity and weight, the more you can borrow for your gold loan. You can receive up to 75% of your gold’s value as per the guidelines set by the RBI.

How can the gold loan be repaid?

We offer multiple repayment options where you may choose to repay your gold loan interest on a monthly, bi-monthly, quarterly, half-yearly, or annually basis as per your convenience. Please note that the principal amount and pending interest, if any, will be due for payment at the time of loan maturity.