Gold Loan Advantages and Disadvantages

All across India, people still consider gold a great investment, which is somewhat true. You can stock up some gold and resell it after a few years making a profit. However, not everyone wants to sell their goal, instead, when there’s a need for some urgent money, people prefer taking loans against gold. And the gold loan is quite popular in India, not just for the Direct Agri category which includes farmers only, but it is a better option for other people as well.

If you are considering the gold loan option, then there are a few things you should keep in mind. Like the duration of the loan repayment, applicable interest rates, renewing the loan, auctioning off your gold after not paying the loan, and interest on time, etc.


We are going to take a look at every possible benefits and drawbacks of signing up for a gold loan in India. This way, you’ll have a clear understanding of whether you should opt for a gold loan, or should you consider other loan options like a personal loan.

👍 Gold Loan Advantages

Here are some pros of taking gold loan:

1. Faster Loan Approval

When you are opting for other kinds of loans, such as personal loans, banks could take more than 48 hours, in some cases 72 hours to issue your loan. Because when applying for a personal loan, the bank verifies all your details and checks for eligibility. But with a goal loan, the case is a bit different, when you take your gold to take the loan against it, the bank evaluates the value of your gold, and after the document verification, your loan is issued. And the whole process just takes about an hour or two.

2. Lower Interest Rates

In case of any other kind of loan option, interest rates are kept high by the banks. For example, when you opt for a personal loan, you have to pay an average of 12.75% interest on the total loan amount. However, depending on the bank where you apply for a personal loan, the interest rates can go as high as 19%. On the other hand, when applying for a gold loan, most government banks charge a 7.20% to 7.80% interest rate. If you apply for a gold loan in a private bank like Kotak, Axis, and ICICI, then the interest rate would be anywhere between 10% to 12.5% maximum.

3. Loan Renewal

You won’t lose your gold if for some reason you couldn’t pay the full loan amount with interest to the bank on the last date. You have another option that is called Loan Renewal. With this option, you don’t need to pay the full loan amount with the interest, instead just pay the total interest rate and ask the bank people to renew your loan for the same period of time. Isn’t it awesome?

4. No Need For Income Proof And Credit History

When applying for personal loans and other kinds of loans from the bank, you have to have a good credit history and a good CIBIL Score. Along with that, the bank requires you to submit income proof as well, so they can assure that you are capable of repaying the loan amount on time. But with gold loans, the case is a bit different, since you don’t need any CIBIL score, credit history, and income proof. All you need is 100% real gold, and basic identity documents, that’s it.

5. Zero Foreclosure Charges

For example, you signed up for 6 months of gold loan, but you are ready to free up your gold from the bank within 3 months. And as per the RBI’s guidelines, you don’t need to pay any foreclosure or pre-payment charges to the bank when repaying the total amount and interest to the bank.

6. Repayment Window For Direct Agri

If you are a farmer or fall under the Direct Agri category, and if for some reason, you couldn’t pay the interest or total amount of the loan to the bank. In that case, you have a 180 days window where you can repay your gold loan. And once this 180 days window closes, your gold will be listed for auction. In some banks, this repayment window for the Direct Agri category may differ a little.

7. No End-Use Restrictions

Unlike certain types of loans that come with restrictions on how the funds can be utilized, gold loans generally have no such restrictions. Borrowers can use the loan amount for any purpose, including business expansion, medical expenses, education, debt consolidation, etc.

8. Minimal Documentation

Gold loans require minimal documentation compared to other types of loans. Typically, borrowers need to provide basic identity proof, address proof, and proof of ownership of the gold being pledged as collateral.

👎 Gold Loan Disadvantages

Here are few cons of taking gold loan:

1. Short Period Loan

Most banks in India provide gold loans for short periods or tenure. For example, government banks usually offer a gold loan maximum of 24 months. However, in some private banks, this tenure duration is much shorter, since they only offer gold loans for a 1-year maximum. However, you can renew your gold loan by paying interest only.

2. Gold Value To Loan Ratio

This is the biggest problem with gold loans, with most banks, you’ll only get the loan amount of 65% to 85% of your gold’s actual market value. But in most banks, you can expect to get at least 70% to 75% of your gold’s total value. You have to research a little about the maximum gold-value-to-loan ratio since there are some banks that can offer a gold-value-to-loan ratio of 85% as well.


Compared to personal loans, and other loans, gold loans are a far better option since the processing is super fast and easy along with lower interest rates. However, there’s a slight risk factor involved where if you don’t repay your gold loan with interest, you may lose your gold. But in most cases, banks will first notify you by sending an LRN or Legal Recall Notice at least 15 days prior to putting your gold for auction.

Gold Loan Frequently Asked Questions

Q1. How Do I Know If I’m Eligible For Gold Loan Or Not?

Ans: To see if you’re eligible for a gold loan, the lender will usually check a few things like your age, income, and creditworthiness. To make it happen, you’ll need to show that you are who you say you are and that you own the gold you want to use as collateral.

Q2. What Happens If I Am Unable To Repay The Loan On Time?

Ans: If you run into trouble and can’t repay the loan on time, the lender may take your pledged gold. That’s why it’s important to communicate with the lender and try to avoid any late fees or extra interest charges. You don’t want to lose your glittery collateral!

Q3. Can I Use The Same Gold As Collateral For Multiple Loans At The Same Time?

Ans: No, you can’t use the same gold as collateral for multiple loans at the same time. It’s like trying to use the same key for multiple locks – it just won’t work. The gold is pledged for a specific loan, and you’ll need to pay it off before you can use it as collateral for another loan.

Q4. Is It Possible To Get An Interest-Free Gold Loan?

Ans: Sorry, but getting an interest-free gold loan is not possible. All loans, including gold loans, require you to pay interest to the lender for borrowing their money.

Q5. Are There Any Additional Fees Or Charges Associated With A Gold Loan?

Ans: Yes, there may be additional fees and charges associated with a gold loan, like processing fees, documentation fees, and late payment fees. Before you accept a gold loan, make sure you read the loan agreement carefully and understand all the fees and charges.

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