Gold loans allow borrowers to raise funds against gold jewellery without selling the asset. They can be used for a range of requirements, including business working capital, agricultural expenses, education, healthcare and household needs.
However, before pledging jewellery, borrowers should understand the cost of borrowing, repayment conditions, loan-to-value limits and the consequences of default.
Vibhas Chandra, Head – Micro Banking and Gold Loan, Ujjivan Small Finance Bank, said faster turnaround times, simpler documentation and flexible repayment options are making gold loans an option for households, farmers and small businesses.
George Alexander Muthoot, Managing Director of Muthoot Finance, said customers use gold loans for working capital, business expenses, education, healthcare and other short-term liquidity requirements. He said their use has expanded beyond emergency funding.
Vishal Singh, Managing Director, Country Head – Assets and Strategic Alliances, Consumer Banking Group, DBS Bank India, said rising gold prices have increased the amount borrowers may be able to access against pledged jewellery, subject to the lender’s valuation and applicable lending limits.
Gold loans vs personal loans: What should borrowers compare?
The main difference is collateral. Gold loans are secured against pledged jewellery, while personal loans are generally unsecured. A gold loan allows borrowers to access funds against an asset they already own, but the jewellery may be at risk if they fail to repay according to the loan agreement.
Borrowers should compare interest rates, processing fees and other charges, documentation requirements, processing time, tenure and repayment conditions. These vary across lenders, so a gold loan should not automatically be assumed to be cheaper or faster than a personal loan.
Repayment flexibility is another factor.
Singh said DBS Bank India offers repayment formats including bullet repayment, monthly or quarterly interest payments, and monthly or quarterly instalments, depending on customers’ requirements and cash flows.
Under a bullet repayment structure, the principal may be payable at the end of the tenure, along with outstanding interest as specified in the agreement. Borrowers should check when principal and interest fall due and whether the repayment schedule matches their ability to generate funds.
How much can a borrower get against gold?
The loan amount depends on the eligible value of the jewellery, its assessed purity and net weight, the applicable loan-to-value (LTV) limit and the lender’s terms.
Under the RBI’s Lending Against Gold and Silver Collateral Directions, 2025, the maximum LTV for eligible consumption loans of up to ₹2 lakh is 85%, subject to the applicable conditions. The permitted LTV varies by loan size, so the maximum ratio should not be treated as a guaranteed loan amount.
A higher gold price may increase the eligible value of the collateral, but it does not automatically determine the amount sanctioned. The lender’s assessment and the applicable LTV limit remain important.
What do RBI’s gold loan rules mean for borrowers?
The RBI’s 2025 directions set out requirements for regulated lenders relating to collateral valuation, assaying, documentation, custody and the release or auction of pledged gold.
Muthoot said harmonised prudential and conduct standards can strengthen transparency and customer protection across regulated lenders. Chandra also highlighted the importance of transparent valuation, appropriate LTV limits, documentation and processes for handling pledged gold.
Before signing a loan agreement, borrowers should check how the lender assesses the jewellery’s purity, net weight and eligible value. They should also understand the applicable charges, repayment schedule, default provisions and procedure for recovering the jewellery after repayment.
What happens if a borrower fails to repay?
If a borrower does not repay the loan according to the agreement, the lender may initiate an auction of the pledged gold to recover outstanding dues, subject to applicable rules and procedures.
Borrowers should understand the lender’s default and auction process, including applicable notices and charges, before taking the loan. They should also retain the valuation details, loan agreement and payment receipts.
A gold loan can provide access to funds without requiring the sale of jewellery, but the borrower must be able to meet the repayment obligation to avoid putting the pledged asset at risk.
FAQs
Can gold loans be used for business expenses and working capital?
Yes. Muthoot cited working capital, business expenses, education, healthcare and household needs among the uses of gold loans. Chandra also highlighted business cash-flow management, agricultural expenses and seasonal funding requirements.
Does a rise in gold prices mean a borrower can get a larger loan?
A higher eligible valuation can increase the amount a borrower may be able to borrow against the same quantity of gold, subject to the applicable LTV limit and the lender’s assessment. The sanctioned amount is not guaranteed to rise by the same proportion as gold prices.
What should borrowers check before pledging jewellery?
Borrowers should compare the interest rate and other charges, understand the repayment schedule and tenure, and check the consequences of default. They should also understand the lender’s auction procedure and the process for recovering the jewellery after repayment.