Gold loan guide: 7 things you must know before you pledge your gold
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Your gold can be auctioned if you default; here's what to know first
A gold loan is one of the fastest ways to get cash in a crisis. But it comes with a serious risk most borrowers ignore — if you miss repayments, the lender has the legal right to auction your gold. Before you walk into any branch, here is everything you need to know.
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Never walk into a jewellery shop for a gold loan
Always borrow from a bank or a registered NBFC like Muthoot Finance or Manappuram Finance. These institutions follow RBI guidelines, store your gold in insured vaults, and issue proper receipts. Private jewellery shops offer none of these protections and can charge exploitative rates.
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Interest rates range from 7% to 29%; compare before you sign
Gold loan interest rates vary wildly between lenders. Always compare at least three to five providers before committing. Watch out for hidden costs too — processing fees, appraisal charges, and late payment penalties can quietly inflate your total repayment amount beyond what you expected.
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Pick the right repayment plan or you will struggle
Gold loans offer four repayment structures. Regular EMI means monthly payments of both principal and interest. Bullet repayment means paying everything at the end of the tenure. Interest-only plans let you pay monthly interest and settle the principal later. Choose what genuinely fits your monthly cash flow — not just what sounds convenient.
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Gold loans are short-term: Do not treat them like long-term debt
Most gold loans run between 3 and 12 months. Some lenders offer up to 36 months. Borrowers who treat gold loans casually often get caught out when the tenure ends. Extensions are possible with some lenders but usually come with added charges. Borrow only what you need and have a clear repayment plan before pledging.
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The golden rules before you borrow
Check the lender's RBI registration. Compare interest rates across multiple providers. Read the fine print on foreclosure and penalty charges. Verify your gold's purity before visiting the lender. Never over-borrow just because you are eligible for a higher amount. A gold loan is a powerful financial tool — but only when used with full awareness of the terms.