Gold loan: How it works and what borrowers must know

In a country like India that has a rich cultural heritage; where gold has intrinsic financial value and sentimental value, a gold loan gives you the ability to leverage the value of your jewellery without selling it. The loan can also be a quick and flexible funding option, for a range of needs, such as business, weddings, education, and medical situations.

Let’s take a look at the key features of a gold loan in India, and what recent RBI directives a borrower should be aware of.

What is a gold loan?

A gold loan is a type of secured loan by banks or a non-banking financial company, when it is secured against a bar of gold, coins, or jewellery in exchange for the loan. Loan to value is the percentage of the gold’s market price used to qualify a loan amount, and the borrower gets the gold back when both principal and interest are paid off.

RBI rules on gold loans: What borrower should know?

In April 2025, the Reserve Bank of India (RBI) released draft rules to promote more transparency and better protect borrowers in the gold loan sector.

• Strict vaulting procedures: Banks must ensure that pledged gold is stored in vaults or lockers under RBI-certified institutions or organisations.
• Regular audit and valuation standards: It may be worthwhile to require conformity in the valuation of gold and regular third party audits.
• Digital consent: Borrowers should digitally consent to the application purpose to give them adequate time to understand borrowing.
• Capping loan term: To minimise rollover risk, the RBI can place caps on loan terms.
• Capping loan limit in cash: Any loan in cash terms (above ₹20,000) must be disbursed through banks.
• Disclosure requirements: Lenders must disclose interest rates, terms of auctions and service fees in simple terms to borrowers.
• Auction control: Auctions (in case of default) should follow fair and transparent processes.
• Insurance of gold: It may be normal and prudent for lenders to purchase insurance to cover pledged gold from losing ownership or theft.
• LTV ratio cap: The cap on LTV ratio at 75% must be followed; to prevent over-leverage.

Is a gold loan right for you?

Gold loans are ideal for people who want fast liquidity without the hassles of a lot of paperwork and approvals. However, borrowers should act with caution:

In conclusion, yes, gold loans are quick, easy and often cheaper than a personal loan, however they still come at a cost. The RBI’s new regime will provide a greater measure of safety and uniformity; with this, standard borrowers will have greater access to these loans.

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