Uncover Myths about Gold Loan and Know Merits and Demerits

gold loan
Golden Abacus with Chinese rmb gold coins as background

Getting a credit by pledging your gold ornaments is called a gold loan. The gold loan is a loan that you can avail with any financial provider by pledging your gold ornaments for money. The gold will act as collateral for the loan, and you will get it back when you repay the loan within the loan tenure with the implicated interest rate.

Many banks and NBFCs offer low interest rate gold loan for people who are in financial need. You should choose the right loan product and the financial provider when you want to benefit from the loan. The interest rate for the loan varies depending upon the loan amount, tenure and the financial provider from whom you get the loan.


Here are the features of the gold loan that you should know:

Secured Loans:

Gold loan is a secured loan. The gold that you pledge for the loan acts as collateral for the loan. As it is a secured loan, you can avail it even though you have a bad credit score. Also, the interest rate will be lesser for a secured loan than an unsecured loan.

Flexible Repayment Options:

With a gold loan, you can get flexible repayment options when compared to other loan types. You can pay EMIs each month for both the loan amount and the interest rate. With another option, you can make a partial payment twice between the tenure end. There is another unique option where you will pay only the interest rate as EMI and the loan amount later at the tenure end. This option is specific only for gold loans.

Unique Benefits For Farmers:

When you are a farmer, then you can avail unique benefits with gold loans like lower interest rate and other discounted rates.

Quick Processing:

The gold loan process is very straightforward and quick, that makes it very special among people who are in need. Also, most of the financial providers offer gold loans online that makes it less time consuming and more accessible.

Rapid Disbursal:

Gold loans offer instant disbursal as it requires only very minimal documentation and processing time.

Different Disbursal Modes:

You can avail loan amount as cash up to Rs.2 lakhs. When your loan amount is above that, you can receive it through check or bank transfer.

No Or Minimum Preclosure Charges:

Most financial providers offer loans without any or very minimal preclosure charges, and you should check with your financial provider regarding this before getting your loan.

Minimal Documentation:

With a gold loan, you have to provide only the necessary proofs to get the loan.

Fund Utilization:

Also, when compared to other loan products with the gold loan, you don’t have to show the reason behind your financial needs. You can utilise the gold loan amount to any of your financial needs without any restrictions.

Loan To Value Ratio:

You avail the loan amount for up to 75% of the gold’s value that you pledge for the loan. The Loan-To-Value ratio for a gold loan varies depending on the financial provider, loan type and the gold purity.

Procedure For Availing A Gold Loan:

Here is the procedure that you have to follow to avail a gold loan physically:

  • Do a thorough research and find the best financial provider who offers the best gold loan product.
  • Go to the nearest branch and provide the necessary documents that are required.
  • Fill in the application form with the needed information correctly and cross-check twice.
  • You should then submit the duly filled application form, gold and the documents that are requested by the financial provider.
  • Then the lender will check the purity of the gold and will estimate an amount that you can avail for the loan.
  • Once the estimation is over, the financial provider will provide the loan amount to you either as cash or bank transfer to you.
  • You will receive a loan receipt that will have all the details regarding the loan amount, tenure and the interest rates.
  • Once when you repay the loan on scheduled time intervals, you can get back the gold that you pledged for the loan.

The online gold loan procedure is most comfortable and quickest than the standard loan process. It takes significantly less time and energy from you.


Here are the merits for the gold loan that makes people choose it over other loan types:

Lower Interest Rate:

Gold loan offers significantly lower interest rates when compared to other loan types as it is a secured loan. The lender will have the gold that you pledge as possession until you repay the loan.

Instant Cash:

With the gold loan, you can get instant cash for the gold that you have pledged.

Minimal Documentation:

A gold loan requires you to submit only the necessary documentation, so the process is very straightforward.

Processing Fee:

You can avail a gold loan with zero or very minimal processing fee that is another crucial aspect of it.

Income Proof Not Needed:

You don’t have to submit any income proof to avail a gold loan. Another crucial advantage of benefiting it as any profession workers, farmers, homemakers or any person can benefit from it.

Credit Score Not Required:

Even when you are a person with no or terrible credit score, you can avail a gold loan. As a gold loan is a loan with collateral, the financial provider will not see your credit score before offering you with the loan amount.


You don’t have to worry about the collateral that you have pledged for the loan. Until you repay the loan, the financial provider will have it safe and secured.


Here are the demerits of gold loan that you should know to get a better understanding:

Lower LTV:

The loan to value ratio for a gold loan is lower when compared to other loan types, and that is a considerable disadvantage. The assets that you provide for other loan types are taken for a higher rate as the gold rate will often fluctuate in the market.

Auction Your Gold:

If you flop to repay the loan on time, then the financial provider has the sole right to auction your gold to retrieve the loan amount.

When you are in an emergency and necessity for immediate funds, then a gold loan is the best choice for you.

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