In India, gold is often bought as a form of jewellery. However, it is also considered to be a great means of investment by numerous people across the nation. Gold also comes in handy during financial emergencies as you can avail loans against the amount of gold you have. It is a quick and easy way to access cash when in need, without having to worry about other factors such as your credit score. Hence, gold loans have become increasingly popular in recent years.
However, like two sides of a coin, everything comes with a few advantages and disadvantages. In this article, let’s take a look at some pros and cons of getting gold loans in India in 2023.
What Are Gold Loans?
Before we get to the pros and cons list, let's understand what exactly are gold loans. Gold loans are secured loans that are disbursed considering the amount of gold as collateral. Gold loans can be taken out for various purposes, such as medical emergencies, weddings, education, and business expansion. Here are some pros and cons of taking gold loans in India in 2023.
Pros Of Gold Loans In India:
Quick Disbursal: According to the data from the Finance Industry Development Council (FIDC), gold loan disbursals have seen a growth of 102% between 2019 and 2022. A big reason for this is the quick and easy process of getting gold loans approved which takes only a few hours as compared to other loans.
Low-interest Rates: Compared to unsecured loans such as personal loans, gold loans have a lower interest rate which typically starts around 7% per annum. This makes it an affordable option for borrowers.
No Credit History: Gold loans are granted based on the amount of gold kept as collateral. Hence, it does not require a credit check, making it an ideal option for individuals with poor credit scores or no credit history.
Flexible Repayment: Gold loans come with flexible repayment options. It allows borrowers to repay the interest or principal amount, in instalments or in full, at any time during the loan tenure.
High Loan Amount: Since gold loans are calculated based on the value of the gold submitted as collateral, borrowers can get a higher loan amount depending on the purity and weight of the gold.
Cons Of Gold Loans In India:
Fluctuating Gold Prices: Since gold loans are calculated based on the amount and value of gold, fluctuating gold prices can affect your loan amount and interest rates.
Varied Processing Fees: Gold loans often come with varied processing fees which differ from lender to lender. Some might charge a high processing fee on your gold loan. So, compare different options to find the most affordable option for you.
LTV Limitations: The Reserve Bank of India also known as RBI has capped the Loan-to-Value Ratio(LTV) at a maximum of 75%. This means that the maximum loan disbursal amount can be only up to 75% of the value of the gold placed as collateral. Hence, lesser gold means a lower loan amount.
Lack Of Transparency: Some gold loan lenders may not provide clear information about the loan terms and conditions, making it difficult for borrowers to make informed decisions. Always make sure to thoroughly research different lenders before choosing a trustworthy one.
Losing Collateral: Since gold loans are secured loans, using gold as collateral. If the borrower defaults the lender can seize the gold. In fact, the lender also has the right to auction off the gold to recover the loan amount.
Also Read: 5 Apps That Let You Invest In Gold Digitally
Now that you know the pros and cons of getting gold loans in India, compare different lenders, check their terms and conditions and only then opt for a gold loan in case of need. With careful consideration and proper research, gold loans can be a helpful tool for financial stability in 2023.
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