Gold has long been part of Indian households — not just as jewelry, but as a trusted way to save for the future. These days, it’s also a practical way to get quick access to cash. Gold loans let you borrow money by using your gold as collateral, without having to sell it. They're easy to get, with fast disbursals and minimal paperwork.

But it’s important to understand the interest rates and fees involved, so you don’t end up with unnecessary debt. This article breaks down how gold loan interest rates work, what charges to watch out for, and how to decide if this kind of loan is right for you.

What is a Gold Loan?

A gold loan is a secured loan where you pl edge your gold jewellery or coins as security to a lender (banks, NBFC or fintech companies) and in return get funds. The loan quantum is linked to the market value of the gold and most lenders offer up to 75% of the value of gold as per RBI guidelines (till 2024).

You own your gold, but the lender stores it in safekeeping until you repay the loan. Whenever you repay the luxury with curiosity and fees, you get your gold back.

How Do Gold Loan Interest Rates Work?

Interest rates on gold loans depend on a number of factors such as the type of interest calculation and factors such as loan amount, gold purity & valuation and credit profile among other things.

Types of Interest Rates

Gold loan interest rates can follow different structures:

• Fixed Interest Rates: Your EMI stays the same throughout the loan tenure. Great for borrowers who prefer predictability.
• Floating Interest Rates: These are linked to benchmarks like the Repo Rate or the lender’s base rate. Your rate may change during the tenure.
• Reducing Balance Rates: Interest is charged only on the outstanding principal, reducing over time as you repay.

Typical Interest Rate Range

Gold loan interest rates in India typically range from 8% to 26% per annum, depending on several factors:

• Public Sector Banks: ~8% to 11%
• Private Banks: ~10% to 15%
• NBFCs & Fintechs: ~12% to 26%

The lender type, your loan amount, and tenure will impact the final rate you receive.

Factors That Influence Your Interest Rate

• Type of Lender: Banks usually offer lower rates than NBFCs. However, NBFCs may have more flexible terms.
• Loan Amount: Higher loan amounts often qualify for better rates.
• Loan Tenure: Shorter tenures may come with lower interest rates.
• Gold Purity & Valuation: 22K and 24K gold typically fetch better terms.
• Credit Profile: Some lenders check your CIBIL score, especially for large loans or online applications.
• Repayment Type: Bullet repayment loans may have slightly higher interest due to risk factors.

What Are the Charges on a Gold Loan?

Beyond interest, several charges can increase the overall cost of your gold loan.

Processing Fees

Most lenders charge 0.5% to 2% of the loan amount as processing fees. Some NBFCs may cap it at ₹1,000 to ₹2,000. This covers administrative and verification costs.

Valuation Charges

The gold you pledge is professionally appraised. These valuation charges are usually ₹250–₹1,500, depending on the lender and gold quantity.

Documentation Charges

Typically between ₹500 to ₹2,000, these charges cover KYC verification and loan agreement drafting.

Storage & Insurance Fees

Gold is stored securely and insured by the lender, but they may pass on this cost as part of your total charges. Some lenders bundle it into processing fees, others show it separately.

Prepayment Charges

Some lenders charge 1% to 3% if you close the loan early. However, many banks and fintechs now offer zero prepayment penalty to stay competitive.

Late Payment Penalties

If you miss a due date, you may be charged 2% to 4% per month on the overdue amount as penal interest. This adds up quickly, so timely repayments are essential.

Example: Cost Breakdown of a Gold Loan

Let’s say you take a ₹2,00,000 gold loan from an NBFC at 14% interest for 12 months, with:

Processing Fee: ₹2,000

Valuation Fee: ₹500

Documentation Fee: ₹1,000

Total interest: ₹28,000

Total charges: ₹3,500

Total cost of borrowing: ₹31,500

That’s nearly 15.75% effective cost, not 14% as advertised. You can compare this with a Loan Against Mutual Funds by using our LAMF calculator here.

Gold Loan vs Loan Against Mutual Funds: Which One's Better?

If you have mutual fund investments, a Loan Against Mutual Funds (LAMF) may be a smarter and cheaper option compared to a gold loan.

Conclusion

A gold loan is a useful financial tool — but the real cost goes beyond just the advertised interest rate. You must evaluate processing fees, hidden charges, repayment flexibility, and the total borrowing cost.

If you’re looking for more affordable credit options with lower interest rates, consider a Loan Against Mutual Funds with Quicklend. Check your eligibility now and see how we can help you borrow smarter.