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What are Gold Loans, and How Do They Work


Key Highlights

  • Gold loans are offered against the value of your gold articles. Most lenders provide a loan that is up to 75% of your gold’s market value.
  • Lenders check the quality of gold and the borrower’s credibility before approving the loan.
  • Gold loans are ideal for individuals with low credit scores and short-term loans that can be repaid within a few months.
  • The repayment structure includes a system to pay interest first, the principal amount later, and easy monthly instalments (EMIs) where you pay a fraction of the interest and principal amount every month.

Gold plays a significant role in Indian celebrations, adorning brides, grooms, and idols, and adding beauty to festivals and weddings. Yet, during times of financial uncertainty, letting go of this precious metal can be emotionally difficult due to its cultural and sentimental value.

But you don't have to sell your precious gold in times of financial need; with gold jewellery loans , you can unlock its value and access funds while still retaining ownership of your cherished asset. It is easy to get a gold loan from a bank or NBFC (Non-Banking Financial Company) via a simple application process.

Apply now for instant and flexible gold loans from Shriram Finance at interest rates starting at 11.5% p.a.* to cater to your needs.

Buthow does a gold loan work? Is it an appropriate strategy to tackle urgent monetary needs? Read on as we discuss the answers to these questions and shed some light on gold loans.

Are gold loans secured or unsecured?

Gold loans work just like traditional secured loans, with slight differences. A gold loan is a cash amount you receive from a lender after submitting your gold as collateral.

Once you pledge your gold items against the loan amount, you can only get them back once you repay the loan in full. For example, you can avail a jewellery loan by putting up your gold ornaments as collateral.

The loan amount granted depends on two factors – market rates and the quality of gold. Most lenders provide a loan of up to 75% of gold’s market value.

How Does a Gold Loan Work?

Here is a detailed description of how you can avail yourself of a gold loan:

Confirmation of the Quality of your Gold Articles

The first step to getting any gold loan is a standard quality check. In-house experts determine the exact quality and market value of your gold articles. If the gold is verified to be between 18-24 karats, the lender will approve the loan easily.

The KYC Process

In this step, the lender verifies your personal details essential for loan approval.

Know-Your-Customer (KYC) is used to validate the borrower’s identity. It focuses on assessing credit history, reason for loan application, and other crucial information about the gold loan applicant.

Loan Request Approval

After determining the value of the submitted gold articles and confirming the borrower’s credibility, if the lender is satisfied, the loan request is approved. Then, both parties sign a document detailing the terms and conditions of the gold loan.

They also discuss the repayment terms.

A few hours after the agreement is drafted and signed, the loan amount is credited to the specified bank account of the lender.


There are different ways in which you can repay the loan. EMI, or equated monthly instalments, is one of the most popular ways. Check out EMI calculators to understand how EMIs work and to figure out how much you will have to pay monthly to repay your gold loan. Apart from EMI, there are other repayment options that you can discuss with your loan provider and include in your agreement. Foreclosure or early closure of your loan is also possible, but comes with a small fee. Shriram Finance charges a nominal amount of 3% to 6% as foreclosure charges.

What are the Repayment Methods for Gold Loans?

Most gold loans have flexible repayment methods to help you complete your payments quickly. Let’s look at two of the most common repayment methods:

Interest First, Principal Amount Later

This process has two parts

  • You can pay the interest as per the EMI schedule of the lender.
  • After you pay off the interest in monthly payments, the principal amount needs to be paid at once when the tenure ends.

This method allows us to manage our monthly cash flow as the amount to be paid monthly is smaller and more affordable. It also allows us to plan our finances better and accumulate enough to pay back the principal amount in a lump sum.

Equated Monthly Instalments (EMIs)

EMIs are the most popular and standardised method of repaying gold loans. Every monthly EMI payment includes a percentage of the principal and interest.

You continue paying the fixed EMIs throughout the loan tenure until the loan is paid off.

To calculate your EMI payments online in seconds, you can use the Gold Loan EMI Calculator from Shriram Finance.

Benefits of a Gold Loan

Here are some reasons why gold loans are preferred over other loan options:

  • Bad credit score doesn't hinder loan approval, as gold serves as valuable collateral.
  • Timely repayment boosts credit score, leading to lower interest rates for future loans.
  • Ideal for short-term needs, with attractive rates.
  • Access immediate funds using liquid gold, avoiding depletion of savings.
  • Protect your gold articles by mortgaging them for loans instead of selling them.

Wrapping Up

Gold has proven to be a fantastic asset, acting as an investment option that helps deal with urgent financial needs. It also offers a great way to secure gold loans at competitive interest rates from reliable sources like Shriram Finance.

So, solve your financial worries with a convenient gold loan! Get a quote& now to avail yourself of flexible gold loans with effortless repayment options.

Frequently Asked Questions (FAQs)

1. What are gold loans?

A gold loan is the money or loan amount you receive when you pledge your gold assets to a lender.

2. How does a gold loan work?

The process of acquiring a gold loan involves three simple steps:

  • Bring your gold to the lender, who will check its purity and then get an estimate of its value and current market price.
  • Confirm your identity and credit history with a KYC process.
  • They will discuss the loan agreement with you before crediting the amount.
  • You repay the amount to get your asset back.

3. What is the process for taking out a gold loan?

The process always starts with an in-depth look at your gold articles. As you await the results, you must undergo a KYC process to confirm your identity and other relevant information.

After these steps, the loan provider decides if you can get a gold loan. If the process is successful, you get the loan.

4. Is a gold loan good or bad?

A gold loan is a good option to take advantage of the high liquidity of your gold articles without selling them. It enables you to address upcoming expenses comfortably.

5. What are the interest rates on gold loans?

Gold loans are secured loans and the interest rate differs from lender to lender. However, Shriram Finance offers gold loans starting at 11.5% p.a.*.

Get a gold loan at low interest rates