What is a Gold Loan and How Does It Work?

A gold loan is a type of secured loan where you pledge your gold jewellery or ornaments as collateral to obtain a loan. It's a popular option for those who need quick access to funds and have gold assets. Here is how it works:

• Pledge Your Gold: You provide your gold jewellery or ornaments to the lender, typically a bank or a Non-Banking Financial Company (NBFC).
• Valuation: The lender assesses the purity and weight of your gold to determine its value.
• Loan Amount: Based on the gold’s value, a loan amount is sanctioned, usually a percentage of the gold’s worth.
• Interest Rate: The lender sets an interest rate for the gold loan. This rate can vary depending on factors such as the market value of gold, the lender's policies, and your creditworthiness.
• Repayment: The borrower can repay the loan in small instalments or as a lump sum over the agreed tenure.
• Gold Release: Upon full repayment, the pledged gold is returned. If the loan is not repaid, the financial institution has the right to sell the gold to recover the loan amount.