What is a gold loan?
A gold loan is a secured loan against gold jewellery, coins, or bars pledged with a bank or NBFC. The loan amount is a percentage of the value of the pledged gold — this percentage is called the Loan-to-Value (LTV) ratio.
RBI's LTV cap
The Reserve Bank of India caps gold loan LTV at 75% for standard EMI gold loans. For bullet-repayment loans (where you pay full interest + principal at the end), some lenders use lower LTVs to manage price risk. The "value" is computed against either the IBJA rate or the lender's daily reference rate (which is typically very close to IBJA).
Eligible gold
Gold jewellery (typically minimum 18-carat purity), gold coins, and gold bars are accepted. Banks also pledge against bank-issued gold coins and Sovereign Gold Bonds in some cases.
Banks vs NBFCs — which to choose?
Banks (SBI, PNB, HDFC, ICICI, Federal Bank, Canara, Indian Bank): interest rates 7–14% per annum, slower disbursal (1–2 days for new customers), tighter appraisal.
NBFCs (Muthoot Finance, Manappuram Finance, IIFL Gold Loan): interest rates 10–24% per annum, faster disbursal (often same-day, sometimes within an hour), more flexible appraisal.
Interest computation
Reducing-balance EMI is standard. The formula:
EMI = P × r × (1+r)^n / ((1+r)^n − 1)
Where P = principal, r = monthly rate (annual rate / 12 / 100), n = tenure in months. Use our gold loan calculator to estimate.
Documents required
- PAN card and Aadhaar (or other KYC)
- Proof of address
- Recent passport-size photograph
- Original gold (with original purchase invoice, where available)
Process
- Walk into the bank/NBFC branch (or apply online for some lenders) with your gold and KYC.
- The lender's appraiser tests the gold (karatmeter or acid test for purity, weight after stones removed).
- Lender computes eligible loan = (weight × purity factor × per-gram rate) × LTV.
- Sign loan agreement; gold is sealed in a tamper-evident packet and stored in lender's vault.
- Disbursal — to your bank account (banks) or in cash up to ₹20,000 (NBFCs).
Risks to manage
- Margin calls. If gold price falls during the tenure, the lender may ask you to top up the gold or partially repay to maintain the LTV.
- Auction. Default leads to gold auction; you forfeit the gold for the outstanding amount.
- Prepayment penalty. Some lenders charge 0.5–2% for closure before tenure.
- Processing fee. 0.5–2% of loan amount.
This is educational content, not financial advice. Compare offers from at least 3 lenders before signing.