Different Types of Gold Loans in India

According to the World Gold Council, India ranks as one of the largest markets for gold with growing affluence driving an increase in demand. You can pledge your gold jewellery, coins, or even bars as collateral and get a gold loan to address short- and long-term needs. 

Different types of gold loans cater to a wide range of needs, including personal, business, and agricultural purposes. By understanding these options, you can make informed decisions and select the gold loan that best meets your financial requirements.

You can choose from various types of gold loans, each designed to meet specific requirements with flexibility in both repayment terms and intended use. Here are some of the most common types:

• Short-term Gold Loans

Short-term gold loans come with shorter tenures, typically ranging from a few months to a year. This makes them a great option if you need quick funds for immediate expenses. Since the loan’s term is shorter, lenders face less risk. This often means you can benefit from lower interest rates as compared to long-term loans.

• Long-term Gold Loans

These types of loans typically have tenures ranging from 1 to 5 years, making them a good choice if you need a more significant amount. With smaller monthly payments spread over an extended period, these loans offer comfortable repayment.

• Bullet Repayment Gold Loans

These types of gold loans come with a repayment structure where you repay both the interest and the principal in a single payment at the end of the loan’s term. This means you do not need to follow any EMI schedule during the loan period. 

Instead, you can settle the entire amount in one lump sum at the end of the term. Due to the one-time payment structure, this type of repayment is known as bullet repayment.

• EMI-based Gold Loans

One of the common ways to repay loans, including gold loans, is through fixed monthly payments, known as Equated Monthly Instalments (EMIs). 

It involves paying fixed monthly amounts that include both the principal and interest components. This allows for a more manageable repayment plan over time.

• Agriculture Gold Loans

These loans are specifically designed to meet the financial needs of farmers. By pledging gold assets, farmers can get these loans at competitive terms from a wide range of lenders. 

These loans help cover expenses related to farming activities, such as purchasing equipment, seeds, fertilizers, or managing other expenses.

• Business Gold Loans

These types of secured loans offer entrepreneurs a quick and straightforward way to access financing to cover various business-related expenses. 

The funds can be used for managing cash flow, expanding operations, or supporting new projects. The loan amount you qualify for depends on the value of the gold you pledge.

Gold jewellery is made mainly from rose, yellow, and white gold. While jewellery pieces may look similar, goldsmiths employ different methods to style them. 

The prices vary based on the making style of the products, as well as the quantity and purity of gold used. Here are the most used variants:

• Gold Plated

Gold-plated jewellery pieces are low-cost options, mainly made of brass or copper brass metal. A thin layer of gold sheet is fused on the surface of a jewellery piece made of different base metals to give it the appearance of real gold. 

However, the low content of gold (0.5% or less) can result in fading or tarnishing of the product over time.

• Gold-Filled

Gold-filled jewellery contains a higher quantity of gold than gold-plated pieces. Here, the base metal includes sterling silver or other metals. 

On the surface, around 5% gold is mechanically bonded to the base. These are more durable due to this mechanical bonding and have a low chance of wearing off. 

• Gold Vermeil

With an increased percentage of gold, vermeil jewellery consists of a metal base (mainly sterling silver) coated with a thick layer of gold plating. As a result, these jewellery pieces have higher durability and quality than gold-plated pieces. 

Moreover, a true vermeil jewellery piece includes 2.5 microns of gold made from 14K or 22K gold. Both gold-filled jewellery items and vermeil are of high quality. However, their difference lies in the manufacturing style. 

Gold-filled jewellery products use mechanical pressure and heat techniques to bond the metals, whereas vermeil involves an electro-plating process.

• Solid Gold

Solid gold jewellery is entirely made from gold with no other added metals. However, jewellers use gold in 22K, 14K or lower as they are harder and more durable. 

Gold alloys may comprise rose, white, or yellow variants to create exclusive looks. The cost of solid gold generally depends on the quality and purity of the gold.

Gold’s purity is evaluated in karats, which reflects the amount of pure gold in the item. Below are the various karat levels you can find in gold:

• 24K Gold

This is the purest form of gold, which contains 100% gold without any trace element. 24k gold is commonly used in making coins and investment-grade gold bars due to its pure form.

• 22K Gold

This type of gold contains approximately 90% of gold and 10% of other metals such as silver, zinc, copper, etc. 22k gold is typically used for jewellery as it offers purity and strength, making it suitable for daily wear.

• 18K Gold

18k gold refers to 75% pure gold mixed with 25% of other metals. This is the most preferred form for making studded jewellery such as diamonds, emeralds, etc.

An overdraft against gold or gold loan overdraft is a financial service that banks and Non-banking Financial Companies (NBFCs) offer. It allows you to pledge your gold ornaments as collateral to secure funds. 

The lender sets a credit limit based on the value of your gold, similar to how the limit of a credit card works. You can withdraw funds as needed, up to the set limit. 

Unlike traditional loans, you do not need to use the entire credit limit. You only pay interest on the amount you actually withdraw. The loan comes with a predefined repayment tenure, and you need to repay both the principal and interest within this period.

With numerous types of gold loans in India available through a wide range of lenders, selecting the right one to meet your needs can be challenging. Here are some essential factors to consider to help you make an informed decision:

• Purpose

Determine the purpose behind getting the loan, whether it is for personal expenses, business needs, or any other reason. This will help you choose the right type of gold loan and lender.

• Loan-to-Value (LTV) Ratio

The LTV ratio dictates the loan amount that you can get against the value of your gold. A higher LTV ratio means you can access a larger loan amount. Based on your financial requirements, choose a type of loan where you get a high LTV ratio to ensure you address the requirements with ease.

• Interest Rate

Interest rates on gold loans can vary between lenders. It is crucial to compare rates offered by different banks or financial institutions. Opt for a lender offering a competitive interest rate to keep your overall costs down.

• Repayment Terms

Review the loan repayment terms carefully. Some lenders offer longer repayment periods with flexible options, while others may have a shorter period. Choose one that provides a suitable repayment plan based on your financial situation.

• Lender’s Reputation

Once you decide on the type of loan you desire, choose a reputed lender to ensure transparency, safety of your asset, fair terms, and excellent customer service. Research options and read customer reviews to ensure you go ahead with a reliable and trustworthy provider. 

Check the gold loan eligibility criteria and paperwork requirements to plan the application better.

At Bajaj Markets, you can explore a wide range of lenders offering gold loans and make a well-informed decision. Comparing and applying for gold loans through this platform is quick and convenient. 

With minimal paperwork, you can complete your application online in a few minutes. Here is a list of partner lenders and the loan terms they offer:

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