Gold Rush Drives Demand For Loans Against Jewellery: What To Consider Before Borrowing?

Bank credit against gold jewellery surged significantly in February 2025, indicated Reserve Bank of India in its latest data. The gold loan portfolio rose by a whopping 87.4 per cent in February, the highest compared to other categories of bank credit.

The growing demand for loans against gold jewellery is coinciding with the skyrocketing price of the precious metal amid an uncertain geopolitical situation and market volatility. Gold serves as a beneficial investment option for investors who want a hedge against inflation and protect their savings from market volatility. Additionally, it also acts as a contingency fund at the time of financial emergencies.

Gold loans: What to consider before borrowing?

While selling gold jewellery during emergencies may cause the loss of money spent on making charges and GST at the time of purchase, borrowing against the asset might be beneficial in such scenarios. For those people who are considering taking a loan against physical gold assets, here are the key things they must know first.

Interest rate

Different bank offers gold loans on various interest rates. Normally, gold loan interest rates range between 7% to 9%. People must compare gold loan interest rates by different lenders and choose the most suitable option.

Loan-to-Value Ratio

Loan to Value ratio, aka LTV, is the percentage of the value of your gold aset which lender or the bank is willing to offer as credit. LTV ratio may vary from bank to bank and based on other scenarios like RBI guidelines, etc. Generally, banks offer upto 75% of LTV for gold assets. Some financial institutions may offer higher LTV percentages.

Gold asset type

Banks generally accept gold jewellery between 18 and 22 karats and bank-minted coins for gold loans. Individuals willing to take credit against their gold bars, imitation jewellery, gold utensils or similar articles may face difficulty as many banks do not accept these gold items for offering credit. Generally, bullion, broken ornaments, gold idols, bars, watches, cutlery, or even thread mangalsutra are also not accepted for gold loans.

Gold loan foreclosure

Foreclosing gold loans would mean that the borrower is paying off the outstanding loan amount in full before the completion of his or her scheduled loan term. While many banks charge no fee on gold loan foreclosure, but individuals must check about the condition before applying for a gold loan.

Gold appraiser charge

Gold appraiser charge is related to the amount paid by the individuals to lender for finding out the worth of the gold ornament they want to give as collateral. The charge includes costing for checking its weight, purity and other necessary details.

Gold loan processing fee

Lenders also charge gold loan processing fee to cover the documentation and expense spent on other documentation. According to State Bank of India's website, individuals are required to pay Rs 200 and Rs 300 ( and GST) as processing fee for three and six months bullet repayment gold loan. For EMI based gold loans, borrowers are required to pay 0.50% of loan amount subject to minimum Rs. 500 and GST. Choose a bank which charges less on loan processing. Apart from all these factors, people must consider other information like gold loan repayment period, processing time, interest rate, and other details.