A gold loan is a loan given against gold jewellery or coins, which the lender keeps safely until the loan is repaid. Gold is the asset that most Indian families hold, so a gold loan is one of the most common ways to borrow in India. Because the gold secures the loan, the lender does not need a salary slip or a long credit history.
The traditional way is to visit a branch. The borrower brings the jewellery. An employee tests its purity and weighs it. The lender then lends only part of its value. RBI rules set a limit on how much of the gold's value may be lent, called the loan-to-value ratio. The gold is sealed in a packet and kept in the branch's vault. When the borrower repays the loan and the interest, the gold is returned.
Newer gold loan companies do the same at the borrower's doorstep. Here is a typical case. A farmer's family in Guntur needs ₹75,000 for seeds and fertiliser. They book a gold loan on an app. An agent visits their home with a testing kit and a scale. He tests a gold chain and two bangles and values them at ₹1,00,000. The lender offers ₹75,000. The family signs on a tablet, and the money is credited to their bank account within an hour. The agent seals the jewellery in a tamper-proof bag, which is tracked to a bank's vault.
The software behind this has three main jobs. First, it records the gold's weight, purity, photographs and seal number. Second, it tracks each packet from the home to the vault, so that nothing is lost on the way. Third, it watches the gold price every day. If the price falls sharply, the gold may no longer cover the loan, and the lender asks the borrower to repay part of it.
A loan origination system records the application and creates the loan. The interest is often paid monthly, and the full amount at the end of the term, or in EMIs.
Gold loans are given by banks and NBFCs, explained in NBFC vs bank. A gold loan is different from digital gold, where people buy small amounts of gold online to save. Compare it also with an instant personal loan app, which lends without any asset pledged.