A gold loan can solve your cash crunch. Here’s all you need to know about getting one.

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If you face a temporary cash crunch and are in an urgent need of funds, you can use the gold sitting in your locker to tide over your cash flow issues.

Banks and non-banking financial companies (NBFCs) offer gold loans for tenures as short as three months to as long as five years. Interest rates range from 8.8% to 18%, depending on the lender, the purity of the gold, and loan-to-value (LTV) ratio, among other things.

While you don’t need a credit history to apply for a gold loan as it is a secured loan (that is, disbursed against collateral), a high credit score can help you secure a slightly lower interest rate.

There is also a processing fee of between 0.25% and 3% of the loan value. While lenders are allowed to offer a loan up to 75% of the value of the gold, they may choose to be more conservative, based on their internal risk-mitigating safeguards. 

Also read: Brisk growth in gold loans likely behind RBI warning

Assuming a lender offers an LTV of 75%, 20 grams of gold – valued ₹1.54 lakh at current prices – would make you eligible for a loan of ₹1.15 lakh. An LTV of 75% is high compared to those of other types of secured loans thanks to gold’s status as a safe-haven asset.

It’s important to remember that a higher LTVs typically means a higher interest rate. A higher LTV means the lender is offering more money against the gold and thus taking on more risk.

Also read: How to take a loan against stocks to tackle a cash crunch

The purity and authenticity of the gold are also important factors. “You can take a loan against gold that is between 18 and 24 karats. Gold bought from verified makers and pledged with the original bill has a higher chance of getting you the maximum loan amount," said Raj Khosla, founder and