Different Types of Gold Loans in India

You can choose from various types of gold loans, each designed to meet specific requirements with flexibility in both repayment terms and intended use. Here are some of the most common types:

• Short-term Gold Loans

Short-term gold loans come with shorter tenures, typically ranging from a few months to a year. This makes them a great option if you need quick funds for immediate expenses. Since the loan’s term is shorter, lenders face less risk. This often means you can benefit from lower interest rates as compared to long-term loans.

• Long-term Gold Loans

These types of loans typically have tenures ranging from 1 to 5 years, making them a good choice if you need a more significant amount. With smaller monthly payments spread over an extended period, these loans offer comfortable repayment.

• Bullet Repayment Gold Loans

These types of gold loans come with a repayment structure where you repay both the interest and the principal in a single payment at the end of the loan’s term. This means you do not need to follow any EMI schedule during the loan period. 

Instead, you can settle the entire amount in one lump sum at the end of the term. Due to the one-time payment structure, this type of repayment is known as bullet repayment.

• EMI-based Gold Loans

One of the common ways to repay loans, including gold loans, is through fixed monthly payments, known as Equated Monthly Instalments (EMIs). 

It involves paying fixed monthly amounts that include both the principal and interest components. This allows for a more manageable repayment plan over time.

• Agriculture Gold Loans

These loans are specifically designed to meet the financial needs of farmers. By pledging gold assets, farmers can get these loans at competitive terms from a wide range of lenders. 

These agriculture gold loans help cover expenses related to farming activities, such as purchasing equipment, seeds, fertilisers, or managing other expenses.

• Business Gold Loans

These types of secured loans offer entrepreneurs a quick and straightforward way to access financing to cover various business-related expenses. 

The funds can be used for managing cash flow, expanding operations, or supporting new projects. The loan amount you qualify for depends on the value of the gold you pledge.

Gold jewellery is made mainly from rose, yellow, and white gold. While jewellery pieces may look similar, goldsmiths employ different methods to style them. 

The gold prices vary based on the making style of the products, as well as the quantity and purity of gold used. Here are the most used variants:

Gold Jewellery

Gold jewellery is among the most commonly accepted forms of collateral for gold loans. This category includes items such as rings, necklaces, bangles, earrings, and other ornaments. The value of your gold jewellery is primarily determined by its gold content, which is measured in karats. According to the Reserve Bank of India (RBI) guidelines, only gold jewellery and ornaments with a minimum purity of 22 karats are eligible for gold loans. If the purity is less than 22 karats, the bank is required to translate the collateral into 22 karat and value the exact grams of the collateral proportionately.

Gold Coins

Gold coins are also accepted by some lenders for gold loans. However, the conditions for using gold coins as collateral are more stringent. Lenders may have specific requirements regarding the weight, purity, and certification of the coins. Therefore, it's advisable to check with the lender beforehand to understand their exact requirements and how they will value your coins.

Hallmarked Gold

Hallmarked gold refers to gold jewellery that has been certified by the Bureau of Indian Standards (BIS) for its purity. This certification ensures that the gold meets specific quality standards, making it more reliable for lenders. Banks and Non-Banking Financial Companies (NBFCs) often prefer granting advances against the security of hallmarked jewellery, as it provides assurance regarding the gold's quality and authenticity.

While gold loans are a popular financial option, not all gold items qualify as acceptable collateral. Understanding which types of gold are generally not accepted can help you avoid potential disappointments. Here’s a closer look at the types below:

• Gold Bars and Bullion: Lenders typically do not accept gold bars or bullion as collateral for loans. This is due to the difficulty in verifying their purity and weight, as well as the lack of standardisation in their form.
  

• Gold Idols and Artefacts: Items like gold idols, statues, or religious artefacts are generally not accepted. These items often have intricate designs and may contain other materials, complicating the valuation process.
  

• Gold Watches and Straps: Gold watches, straps, and similar items are usually excluded. Their valuation can be challenging due to the presence of non-gold components and varying designs.
  

• Gold-plated and Gold-filled Items: Jewellery that is gold-plated or gold-filled, rather than solid gold, is typically not accepted. The thin layer of gold in these items makes them less valuable and harder to authenticate.
  

• Gold Coins Above 50 Grams: While some lenders accept bank-minted gold coins, they often have a weight limit, typically up to 50 grams per customer. Coins exceeding this weight may not be eligible.
  

• Imitation and Costume Jewellery: Items made from base metals and coated with a thin layer of gold are considered imitation jewellery and are not accepted for gold loans.
  

• Damaged or Broken Gold Items: Gold jewellery that is broken or severely damaged may not be accepted, as it can be difficult to assess its purity and value accurately.

Disclaimer: The information provided in these sections is intended for general informational purposes only. Readers are advised to consult directly with financial institutions or lenders for the most current and specific information pertaining to gold loan eligibility and valuation criteria. 

The amount you can borrow against your gold is determined by several key factors. Understanding these can help you maximise your loan eligibility:

Gold Purity

The purity of your gold, measured in karats (K), plays a significant role in its valuation. Higher purity gold, such as 22K or 24K, is more valuable and may qualify for a higher loan amount. Lenders typically assess the pure gold content, excluding any non-gold elements like stones or alloys.

Weight of the Gold

The total weight of the gold you pledge directly impacts the loan amount. Lenders calculate the weight after deducting any non-gold components, such as stones or other materials, to determine the net gold weight. Heavier gold items generally result in higher loan amounts, provided the purity is also high.

Market Price of Gold

The current market price of gold per gram is a crucial determinant. Gold prices fluctuate based on global market trends, economic conditions, and geopolitical factors. Lenders often use the average market price of gold over the past 30 days to mitigate short-term volatility.

Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) ratio is the percentage of your gold's assessed value that a lender is willing to offer as a loan. As per Reserve Bank of India (RBI) guidelines, the maximum LTV ratio for gold loans is capped at 75%. This means you can borrow up to 75% of your gold's market value.

Type of Gold Item

The nature of the gold item also affects its valuation. Gold jewellery may be valued differently compared to gold coins or bars due to factors like craftsmanship, design, and the presence of non-gold materials. Items like gold-plated or gold-filled jewellery are typically not accepted for gold loans.

Condition and Age of the Gold

The physical condition and age of your gold items can influence their valuation. Well-maintained, newer pieces may fetch a higher loan amount compared to older or damaged items. Lenders assess the overall condition to determine the resale value in case of default.

Documentation and Verification

Proper documentation is essential for securing a gold loan. Lenders typically require proof of identity, address, and ownership of the gold. Clear documentation ensures a smooth valuation process and may positively impact the loan amount offered.

Gold’s purity is evaluated in karats, which reflects the amount of pure gold in the item. Below are the various karat levels you can find in gold:

• 24K Gold

This is the purest form of gold, which contains 100% gold without any trace element. 24k gold is commonly used in making coins and investment-grade gold bars due to its pure form.

• 22K Gold

This type of gold contains approximately 90% of gold and 10% of other metals such as silver, zinc, copper, etc. 22k gold is typically used for jewellery as it offers purity and strength, making it suitable for daily wear.

• 18K Gold

18k gold refers to 75% pure gold mixed with 25% of other metals. This is the most preferred form for making studded jewellery such as diamonds, emeralds, etc.

• 14K Gold

14K gold is composed of 58.3% pure gold and 41.7% alloy metals like copper, silver, and zinc. This composition makes 14K gold more durable and resistant to scratches compared to gold of higher purities. It's a popular choice for engagement rings, wedding bands, and everyday jewellery due to its balance between purity and strength. 

An overdraft against gold or gold loan overdraft is a financial service that banks and Non-banking Financial Companies (NBFCs) offer. It allows you to pledge your gold ornaments as collateral to secure funds. 

The lender sets a credit limit based on the value of your gold, similar to how the limit of a credit card works. You can withdraw funds as needed, up to the set limit. 

Unlike traditional loans, you do not need to use the entire credit limit. You only pay interest on the amount you actually withdraw. The loan comes with a predefined repayment tenure, and you need to repay both the principal and interest within this period.

With numerous types of gold loans in India available through a wide range of lenders, selecting the right one to meet your needs can be challenging. Here are some essential factors to consider to help you make an informed decision:

• Purpose

Determine the purpose behind getting the loan, whether it is for personal expenses, business needs, or any other reason. This will help you choose the right type of gold loan and lender.

• Loan-to-Value (LTV) Ratio

The LTV ratio dictates the loan amount that you can get against the value of your gold. A higher LTV ratio means you can access a larger loan amount. Based on your financial requirements, choose a type of loan where you get a high LTV ratio to ensure you address the requirements with ease.

• Interest Rate

Interest rates on gold loans can vary between lenders. It is crucial to compare rates offered by different banks or financial institutions. Opt for a lender offering a competitive interest rate to keep your overall costs down.

• Repayment Terms

Review the loan repayment terms carefully. Some lenders offer longer repayment periods with flexible options, while others may have a shorter period. Choose one that provides a suitable repayment plan based on your financial situation.

• Lender’s Reputation

Once you decide on the type of loan you desire, choose a reputed lender to ensure transparency, safety of your asset, fair terms, and excellent customer service. Research options and read customer reviews to ensure you go ahead with a reliable and trustworthy provider. 

Check the gold loan eligibility criteria and paperwork requirements to plan the application better.

Gold loans offer flexibility to meet various financial needs. Understanding the benefits of each type can help you choose the one that aligns with your requirements. Here are the benefits for each Gold loan type, explained below in further detail:

Structured Repayment Plan

EMI gold loans provide a fixed repayment schedule, making it easier to manage monthly finances. This predictability is ideal for individuals with regular income streams.

Lower Interest Rates

Since these loans are secured against gold, lenders often offer competitive interest rates, making them more affordable compared to unsecured loans.

Quick Disbursal

The process of availing a gold loan with EMI is streamlined, ensuring quick disbursal of funds, which is crucial during emergencies.

Minimal Documentation

Gold loans typically require less paperwork, reducing the time and effort involved in the application process.

Flexibility in Withdrawals

An overdraft facility allows you to withdraw funds as needed, up to a pre-approved limit, providing financial flexibility.

Interest on Utilised Amount Only

Interest is charged only on the amount withdrawn, not the entire sanctioned limit, potentially lowering overall borrowing costs.

No Fixed Repayment Schedule

Overdraft gold loans do not require fixed monthly payments, offering flexibility in repayment based on your financial situation.

Revolving Credit

Similar to a credit line, funds can be borrowed, repaid, and borrowed again, making it suitable for ongoing financial needs.

1. Bajaj Finserv Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.