Key Takeaways
- A gold loan is secured by pledged gold, so it is faster and usually cheaper than a personal loan.
- The RBI caps loan-to-value at 75%, so you can borrow up to three-quarters of your gold's value.
- The per-gram amount depends on the daily gold rate and purity (22K fetches more than 18K); only gold content is valued, not stones or making charges.
- Repay flexibly (EMI, bullet, interest-only or overdraft) - but on default the lender can auction your gold.
A gold loan is a secured loan where you pledge gold jewellery or coins with a bank or NBFC and borrow money against their value. Because the loan is backed by gold, it is usually faster to get and cheaper than an unsecured personal loan, which makes it a popular way to raise short-term funds in India - especially with gold prices high.
Quick answer: In a gold loan you pledge gold as collateral and borrow up to a regulated share of its value. The RBI caps the loan-to-value (LTV) at 75%, so on gold worth ₹1,00,000 you can borrow up to about ₹75,000. Interest rates are typically lower than personal loans because the loan is secured, and the gold is returned once you repay.
How a gold loan works
- You take your gold to a lender, who checks its purity (usually 18-22 karat is accepted) and weight.
- The lender values the gold based on the current market rate for its purity.
- You are offered a loan up to the regulated loan-to-value (LTV) limit.
- You submit basic KYC, sign the agreement and receive the money - often the same day.
- You repay as agreed, and the gold is returned in the same sealed condition.
The gold stays safely in the lender's vault for the loan period and is never sold unless you default.
Loan-to-value (LTV) and the per-gram amount
The RBI caps the LTV on gold loans at 75% of the value of the pledged gold. So the maximum you can borrow is three-quarters of what your gold is worth.
The per-gram loan amount you see advertised is simply the eligible loan value for one gram of gold at a given purity:
Per-gram loan = (market rate per gram for that purity) × LTV
Since gold prices move daily, the per-gram amount changes daily too. Purity matters: 22-karat gold fetches a higher per-gram value than 18-karat. Only the gold content is valued - stones, gems and the making charges in jewellery are not.
Gold loan interest rates in India
Interest rates vary widely by lender type:
| Lender type | Typical rate range |
|---|---|
| Public & private banks | Lower end (often single digits to mid-teens) |
| Gold-loan NBFCs | Higher, can reach the low-to-mid 20s% |
Banks usually offer the lowest rates but may be slower and stricter. Specialist gold-loan NBFCs are faster and more flexible on documentation but charge more. Always compare the annual percentage rate, not just the headline rate, and check processing fees, valuation charges and any prepayment penalty.
Use the EMI calculator to see the monthly cost of a gold loan at different rates and tenures before you borrow.
Eligibility and documents
Gold loans have the simplest eligibility of any loan because the gold is the security:
- Age: usually 18 and above.
- Who can apply: salaried, self-employed, farmers, homemakers - income proof is often not required.
- Gold: jewellery or coins of accepted purity (commonly 18-22 karat); bank coins up to a weight limit.
Documents are minimal: a PAN or Form 60, and an address/identity proof such as Aadhaar. No credit score or income document is typically needed, which is why gold loans are accessible even to those a personal loan would reject.
Repayment options
Gold loans are flexible on how you repay:
- Regular EMI: equal monthly payments of principal plus interest.
- Bullet repayment: pay the entire principal and interest at the end of the tenure - useful for short-term needs.
- Interest-only / periodic interest: pay interest during the tenure and principal at the end.
- Overdraft: withdraw as needed against a sanctioned limit and pay interest only on what you use.
Short tenures (a few months to a few years) are common. Prepayment is usually allowed, often with no penalty - check before signing.
Gold loan vs personal loan
| Feature | Gold loan | Personal loan |
|---|---|---|
| Security | Secured (gold pledged) | Unsecured |
| Interest rate | Generally lower | Generally higher |
| Disbursal speed | Very fast (same day) | Fast, but credit checks apply |
| Credit score | Usually not required | Important |
| Risk | Gold can be auctioned on default | No asset at risk |
| Best for | Short-term needs, those without income proof | Larger needs, no asset to pledge |
If you own gold and need money quickly and cheaply, a gold loan is usually the better choice. If you would rather not risk your gold or need a larger amount over a longer period, compare a personal loan.
The risk you must understand
If you fail to repay, the lender can auction your gold to recover the dues, after giving notice as required. Falling gold prices can also trigger a margin call where you must pay down the loan or pledge more gold. Borrow only what you can comfortably repay, and keep the tenure short.
Frequently Asked Questions
How much loan can I get per gram of gold?
It depends on the daily market rate for your gold's purity and the 75% LTV cap. The per-gram loan equals the market value of one gram at that purity multiplied by the LTV, so it changes every day and is higher for 22-karat than 18-karat gold.
What is the interest rate on a gold loan in India?
Rates vary by lender - banks are usually at the lower end while gold-loan NBFCs charge more, sometimes into the low-to-mid 20s%. Compare the annual percentage rate plus processing and valuation charges across a few lenders before choosing.
What is the maximum gold loan I can get?
The RBI caps the loan-to-value at 75% of the pledged gold's value, so you can borrow up to three-quarters of what your gold is worth. The absolute amount depends on the weight and purity of the gold you pledge.
Do I need a good credit score for a gold loan?
Usually not. Because the loan is secured by gold, most lenders do not require a credit score or income proof, which makes gold loans accessible even to people who may not qualify for a personal loan.
What happens if I cannot repay my gold loan?
The lender can auction your pledged gold to recover the outstanding amount after giving the required notice. A sharp fall in gold prices can also trigger a request to pay down the loan or add gold. Borrow conservatively and keep the tenure short to avoid this.
Is gold loan better than a personal loan?
If you own gold and need funds quickly and at a lower rate, a gold loan is usually cheaper and faster, with no credit-score hurdle. A personal loan suits larger or longer-term needs and keeps your gold free, but costs more. Compare both with the EMI calculator.
Important: This article is general educational information, not personalised financial advice. Interest rates, LTV limits and charges vary by lender and can change - verify current terms with the lender and the RBI before borrowing.
Official references: - Reserve Bank of India
More frequently asked questions
Is a gold loan better than a personal loan?
If you own gold and need funds quickly at a lower rate, a gold loan is usually cheaper and faster, with no credit-score hurdle. A personal loan suits larger or longer-term needs and keeps your gold free, but costs more. Compare both with the EMI calculator.