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In a secured loan known as a “gold loan,” the borrower pledges their gold, weighing between 18 and 24 carats, to a bank or other financial institution as security in exchange for cash. In terms of comparison, a gold loan is comparable to a “mortgage loan,” in which the owner maintains a mortgage with the bank on their home or other property and obtains a loan against it to meet their financial needs. If you lack knowledge regarding what is gold loan, then you should spend some time learning it. In this content, you will get to learn about what is gold loan and how you can use it for your benefit.

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What is gold loan and How Do Gold Loans Work?

A profitable loan for banks is a gold loan because they are not concerned with non-performing assets (NPAs). This is so that the jewelry that was pledged as security remains with the bank even if the borrower falls behind on their loan’s monthly payments (EMIs).

A gold loan operates as follows:

  • Checking the quality: When a customer approaches a financial institution for a gold loan, the institution’s first move is to determine the value of the jewelry and check the purity of the gold jewelry that is being used as collateral.
  • Know Your Customer (KYC): The Reserve Bank of India (RBI) has established Know Your Customer norms and checks, which are carried out by the bank. Through these procedures, the bank learns information about its customers’ identities, credit histories, reasons for applying for loans, and other details that are important for approving those loans.
  • Gold loan approval: The terms of the loan are agreed upon by the financial institution and the customer after the quality and value of the jewelry have been established and the KYC process has been completed. The loan is approved after mutual consent, and the money is then credited to the borrower’s accoThis entire procedure can be finished in a few hours.

What are the Features of a Gold Loan?

Interest rates

Depending on the purity of the gold, different interest rates apply to gold loans. The amount that can be obtained increases with the purity of the gold. In the public sector, interest rates range from 8% to 18% annually, while in the private sector, they can reach 24% annually.

Haircut and loan to value ratio (LTV)

According to RBI regulations, banks are only permitted to lend up to 90% of the value of gold, which means that a minimum haircut of 10% is required. It is the safest loan for banks because the actual loan to value ratio typically ranges from 55% to 65%, or roughly a 35% to 45% margin for the banks.

LTV stands for loan to value ratio and refers to the amount a customer will receive in comparison to the value of gold. For instance, the maximum loan amount a customer could receive is INR 6,500 if the value of the jewelry is INR 10,000 and the LTV is 65%.


A gold loan typically has a tenure of six months to 24 months and is classified as a short- to medium-term loan. It is not, therefore, a long-term loan instrument.

Loan available even to low credit scorers

The jewelry will be deposited with the bank as collateral against the loan, so even with a low credit score, the bank is confident that they can grant the borrower a loan.

Stones’ weight and value are not accounted for.

Despite their high value, precious stones are not considered when calculating a gold loan. Only the gold’s value is considered in the calculation, so a digital gold product is frequently chosen over a standard one for pledging purposes.

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Who Must Choose a Gold Loan?

Those who need short-term funds

A gold loan functions as a typical working capital loan in businesses, providing the short-term funding needed. In such cases, a gold loan is preferred on a comparative basis over a personal loan with unfavorable interest rates. You should be aware of what is gold loan interest rate as it plays a very important role.

those with a bad credit rating

Due to the fact that the jewelry serves as collateral for the loan, the bank is confident in extending a gold loan to a person with bad credit.

People who own gold but take out personal loans

To avoid paying high-interest rates, people who are considering a short-term personal loan but have gold sitting idle in safes should think about taking out a gold loan instead. What is gold loan and its proper use will help you to progress in life and do better.

Those who choose to borrow gold from the unorganized sector

Users may choose to borrow gold from unorganized players out of fear that organized financial institutions will reject them for a loan due to their credit history. These users end up paying high-interest rates ranging from 25% to 50% annually. You should check out what is gold loan process from the organized sector for smooth functioning.

It is better to choose a gold loan from banks and other reputable lenders because a gold loan is fully secured and does not take credit history into account. As banks are required to charge interest in accordance with RBI norms, which are reasonable and market-compliant, this would help reduce interest costs.

How to Opt For a Loan Using Digital Gold?

People now have access to a more profitable option thanks to the development of digital gold products, which will help to lower the overall cost of gold loans. You will get to learn more about digital gold loans when you search what is gold loan process on the internet.

You might think about selling your actual pure gold (which comes in the forms of “vedhnis,” biscuits, coins, and bars) and transferring the proceeds into the form of digital sovereign gold bonds (SGBs).

Q. How soon can I expect to receive my gold loan?

Ans. If everything is in order when you submit your application form and supporting documents, we will grant approval quickly. The branch head has the sole authority to approve or deny any loan.

Q. Are the gold jewelry pledges with Manappuram safe and secure?

Ans. Customers’ gold jewelry that has been accepted as a pledge is kept at the branches in strong safes or strong rooms that have been constructed to the standards and guidelines that apply to commercial banks. The gold ornaments that have been pledged are fully insured. In order to safeguard the gold, electronic surveillance technology is also used.

Q. Do I need to open an account with a bank or do I need a guarantor or introducer to get a gold loan?

Ans. No. In contrast to other loans, if the transaction is for less than one lakh rupees, neither a guarantor nor an introducer is required, nor is a bank account. However, since doing business through a bank account complies with regulations, we advise against it.

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