Credit & Debt
Gold Loans
How borrowing against gold jewellery works in India, why it is popular, and the risks of losing the gold if the loan is not repaid.
In India, households own vast amounts of gold, much of it as jewellery. Gold loans let people borrow money by pledging this gold as security, or collateral. They have become one of the fastest-growing forms of credit in India.
How gold loans work
- The borrower brings gold jewellery to a bank or non-banking financial company.
- The lender checks the purity and weight of the gold and values it.
- The lender offers a loan up to a certain share of the gold’s value, called the loan-to-value ratio. The RBI sets limits on this ratio, generally 75 percent for most lenders.
- The borrower repays the loan with interest and gets the gold back.
- If the borrower does not repay, the lender can auction the gold to recover the money.
Why they are popular
- Speed: loans can be approved within minutes or hours.
- Little paperwork: no need for detailed income proof or a strong credit history.
- Lower interest than many unsecured loans, because the gold reduces the lender’s risk.
- Access: useful for farmers, small business owners and people without formal credit records.
Gold loans are commonly used for emergencies, medical bills, school fees, farming and small business needs.
Risks
- Losing family gold: if repayments are missed, the gold may be auctioned. Jewellery often carries sentimental and cultural value beyond its price.
- Falling gold prices: if the value of gold drops, lenders may ask for extra repayment or more gold.
- Interest rate differences: rates vary widely between lenders.
In 2024, the RBI raised concerns about irregular practices at some gold loan lenders, including valuation and auction procedures, and asked lenders to tighten their processes.
A farmer needs 60,000 rupees to buy seeds and fertiliser before the planting season, and expects to repay after harvest. Pledging family jewellery for a gold loan provides the money quickly at a lower rate than a moneylender would charge. If the harvest is good, the loan is repaid and the gold returned. If it fails, the family risks losing the jewellery.
While the gold remains yours, it can be sold by the lender if you do not repay. Borrowing only what you are confident you can repay, and understanding auction rules, protects your gold.
- Gold loans let borrowers pledge gold as collateral for quick credit.
- The RBI limits loans to a share of the gold's value, generally 75 percent.
- They are fast, need little paperwork and usually cost less than unsecured loans.
- Missed repayments can lead to the gold being auctioned.
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