How Does a Gold Loan Work? A Simple Step-by-Step Guide

A Gold loan is a fast and easy method to access cash through pledging gold jewellery as security for the loan. The method of obtaining a Gold Loan is designed to be simple, hence many people like to use this type of loan for getting rapid cash potential.

Here's how it works step-by-step:

Step 1: Take your gold items to an NBFC (National Banking Financial Corporation) or bank to pledge as collateral for a gold loan. The lender will weigh the gold and analyse the quality to calculate the value of the pledged gold. This will be the basis of how much the lender will lend you as a loan because the amount approved as a loan will be based upon the net weight and quality of the gold used as collateral. The lending value is typically determined on the current gold prices in India.

Step 2: In the gold loan process, the lender will calculate the amount of the loan you are eligible for or entitled to borrow based upon the net weight value of your pledges and by determining the Loan to Value ratio. Once you have decided if you want to accept their offer and signed the required documentation, then the loan funding will be approved and again, because it’s a collateralised loan, the approval is usually processed quickly.

Step 3: The funds typically will be made available to you within the same day of the loan application approval. Remember to carefully check the gold loan interest rate that the lender will be charging you for your Gold Loan, since all lenders’ gold loan rates vary depending upon interest rates and the total amount of money you need to pay back at the end of the loan’s term.

Step 4: You will have different options available to repay the gold loan such as paying in full at the end of the term or monthly through EMIs (Equal Monthly Instalment).