Things to Keep in Mind While Applying for a Gold Loan

One of the most common investment options in India has always been gold. Gold has long been useful for people in tough situations or during financial crises because of its steadily rising value. We can easily pledge our gold to obtain a gold loan nowadays because a number of banks and Non-Banking Financial Institutions (NBFCs) offer gold loans with reasonable interest rates and minimal paperwork. Even though getting a Gold Loan is a quick and simple method to borrow money. There are a few things you should know before getting one to make sure you get the most out of it. Everything you need to know about applying for a Gold Loan is explained in this post.

The gold value determines the loan amount.

The number of banks and NBFCs that offer gold loans varies, as does the loan amount. The total loan amount is determined by the loan’s value. You are more likely to acquire a larger gold loan amount the purer the gold is. The gold is evaluated by the gold evaluators employed by the banks and NBFCs to determine its purity. It is used to determine the sanctioned quantity. Depending on the lender and the Loan to Worth (LTV) ratio, a borrower may be able to get a loan amount equal to 75% to 90% of the gold’s value.

The credibility of the lender

Choosing the best lender can be challenging because there are so many banks and NBFCs that offer gold loans. You should make sure the lender is reputable before applying for a gold loan. Because you would be entrusting them with your priceless jewelry. For the security of the gold promised, you should look into the lender’s security practices and client testimonials. Numerous jewelers and unauthorized lenders also provide gold loans. It is often at somewhat better rates, but it is best to steer clear of these lenders altogether. There have been numerous instances of fraud involving these unlicensed lenders. in which the borrowers did not receive the gold they had pledged despite making full repayment.

Rate of interest

When asking for a gold loan, the rate of interest is an important consideration because it affects how much you will have to repay. The gold loan interest rate is considerably lower than for unsecured loans like personal loans because it is a secured loan. Depending on the purity of the gold and other parameters at the time of loan application, the rate of interest for a gold loan varies from lender to lender. It normally falls between 7% and 15% annually. Checking the interest rates of multiple lenders is therefore advised. Compared to NBFCs, banks often provide lower interest rates. But unlike other NBFCs, most banks impose processing fees of 1% to 2% of the loan amount.

Repayment methods

When requesting a gold loan, the majority of people frequently disregard this crucial element. For a gold loan, the majority of banks and NBFCs provide flexible repayment choices. Your needs and financial position should guide your decision regarding the loan payback strategy. Some of the most practical repayment options to think about are listed below:

  • Bullet repayment

Borrowers have the option of paying both the interest and the principal in one lump sum at the conclusion of the loan term. Although the interest is calculated monthly, the payment is only payable after the loan period is complete. The borrower need not worry about making EMI payments during the loan term because they are obliged to make one lump sum repayment of the whole loan balance at the conclusion of the term. If you are going through a financial crisis and already have a significant EMI burden, the bullet repayment plan is suitable for you. However, keep in mind that a sizable final principal + interest payment is eventually required.

  • Pay only interest as EMI and Principal later

A borrower may only pay the interest owed on the loan in accordance with the EMI schedule when using this type of repayment plan. By the conclusion of the loan period, the borrower may repay the principal in any convenient manner. Therefore, a borrower only needs to worry about paying the monthly interest payment. The principal payment is taken care of at the conclusion of the loan term. If you are struggling to make large EMI payments but still want to repay a set amount as EMI to avoid making a large payment all at once, this is the best repayment option for you.

  • Overdraft facility

The overdraft facility offers the borrower a line of credit that can be used as needed. It also allows them to only pay interest on the amount that has actually been used. For instance, if you used only Rs. 2 lakhs of an Rs. 5 lakh overdraft capacity, you would only be required to pay interest on the Rs. 2 lakhs that were actually used. This choice is appropriate for business owners who occasionally need money for working capital but are unsure of the precise amount needed.

  • Regular EMI’s

As the name implies, a borrower is obliged to pay back the scheduled EMIs on a monthly basis under this type of repayment option.


One of the finest solutions for short-term financial needs is a gold loan. It is a fantastic option for both businesspeople and salaried people due to its many advantages. This includes its quick and simple application process, lower interest rate, flexible repayment options, lack of restrictions on how the loan amount may be used, lack of a hard credit check, use of gold as security, multiple times of the same gold pledge, etc. However, you should be sure you can repay the loan on time before putting up your priceless gold as collateral.


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