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Mistakes to Avoid while Applying for a Gold Loan

4 Mins 02 Jan 2022 0 COMMENT


Gold is a precious asset. Nowadays, it is not only a symbol of wealth and investment. It can also be used to receive loans. You can avail of a loan against gold jewellery to get money for your personal or business needs. With the gold you have, you can receive gold on loan for any value from ₹1 lakh to ₹ one crore within a few minutes. Your gold is stored in a safe vault and is given back to you to repay your interest and loan amount in the same state you gave it.

Mistakes to avoid while applying for a gold loan

Purchasing a gold loan is a quick way to receive money without losing the gold that you give the lender. The process of getting a loan needs to be fast and hassle-free. When using your gold to avail yourself of a loan, you should be sure that you avoid all mistakes that might cost you dearly in the future. Several errors can happen while applying for a gold loan. Let us look at a few of them. 

  • One of the biggest mistakes you can make is purchasing a gold loan from a lender who has little credibility. Sometimes, lenders with less credibility will offer a gold loan at better interest rates to lure you into buying from them. Even though these might sound like a good deal, you need to be sure that the lender will not use reasonable interest rates to cheat you off your jewellery. Since you are giving the lender your gold till you repay your debt, you need to be sure that it will be in safe hands. You should deal only with lenders who will store this gold in a solid and secure vault. That will avoid the risks of theft. To avoid these mistakes, it is better to purchase a gold loan from a reputed bank or a non-banking financial corporation where you will know that your gold is safe.
  • You should also never choose a scheme that will offer you a higher loan to value ratio. According to the Reserve Bank of India, when you apply for a loan on gold, you will receive a maximum of 75% of the gold value. But some lenders, to obtain high-interest rates, will offer a higher loan to value ratio. So, you might get a loan of more than 75% of the value of the gold that you pledge, but beware you have to pay a higher interest rate for these loans.  To avoid this, you should know the number of interest rates that you will have to pay on your loan against gold jewellery. Choosing a loan scheme that will offer you a higher loan to value amount at lower interest rates is better.
  • You should also avoid the mistake of not knowing how much your gold is worth. Gold comes in many forms like gold bars, gold coins, gold jewellery with gemstones. Some gold will have lesser purity and will have a different level of fineness. It is based on this that the lender will judge the value of your gold. Lenders generally do not accept gold coins. Applications for gold loans supported by gold that is less of purity might be rejected. It is better to know what gold you have and its value to avoid the risk of rejection of your gold loan.
  • Most borrowers apply for a loan on gold for quick money. In this haste to receive the money, they might not spend much time reading the terms and conditions. When you apply for a loan on gold, you should avoid making the mistake of not reading the fine print of your scheme. This will mention several clauses that you might not be aware of that might not work in your best interest. You might be agreeing to pay for several charges or pay extra interest that you aren’t aware of. To avoid this, it is best to go to a reputed lender who will read out all the terms and conditions to you.
  • Another mistake you can make is not doing enough research before choosing a lender. There are several gold loans available in the market. Avoid going for the first offer that you find profitable. The more you search, the higher chance of you finding a better deal. Never settle for a deal that might not have the best terms just because you are in a hurry to receive the money.
  • Not being aware of the auction terms of your pledged asset in case of default might be a huge mistake. Most lenders will let you know if you haven’t made the necessary payments on time. Some might grant you a little extra time to make the required payments. You should be aware of lenders who do not let you know the terms within which your gold will be seized and sold. You should get a loan from a lender who will lay down a procedure to be followed. The lender should give you ample time to recover your asset before it goes into auction.
  • You might also not be aware of the repayment structure of your gold loan. Each gold loan and each lender might have different repayment options. You might have to make partial payments or monthly or quarterly payments. Or you might have to pay only the interest and pay the principal amount later. You need to be aware of this since you need to have enough liquidity to make these payments on time If you do not know this, you might make your payments on time. This will lead to losing your gold.

Additional Read: Why Gold is the Perfect Investment for You This Diwali


Even though you might apply for a loan on gold to receive quick money, it is always prudent to avoid the above mistakes. The gold you have is one of your most precious assets, and you need to take all the caution to avoid losing it.

Also Read: When is the Good Time to Invest in Gold Mutual Fund

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