How Do Banks Determine Charges of Gold Loan Per Gram?

The interest rates on gold loan, availed by pledging gold, are relatively lower than other types of loans and range. Read to know more!

16 Dec,2022 17:45 IST 1684 Views
How Do Banks Determine Charges of Gold Loan Per Gram?

A gold loan can be a good alternative to personal or business loans when there are idle gold assets at home or in bank lockers. The loan amount on a gold loan depends on the purity and net weight of the gold jewellery. Most banks and non-banking finance companies accept 18-22 karats of gold for sanctioning loans. It must be noted that gold assets of 22 karats or more gives the maximum value on a gold loan.

But when availing a gold loan, an important factor to consider is the lender’s gold per gram policy.

What Is Per Gram Rate For Gold Loans?

The per gram rate refers to the amount a borrower can get for every gram of pledged gold. There are many factors like the purity and the weight of the gold item that together decide the gold loan per gram rate. Gold loan per gram is determined by the gold price per gram on a particular day. Many lenders consider the 30-day average of gold prices to arrive at the per-gram price for a gold loan.

Determining the value of gold is a complex process. Internationally, gold prices are fixed on a daily basis by the London Bullion Market Association in the US dollar, the pound sterling, and the euro. Prices in India, which imports most of its gold requirements, track international prices.

Gold Prices In India

Gold prices in India are determined through a complicated process. The Indian Bullion Jewellers Association, which includes the biggest gold dealers in the country, is a key player in determining the day-to-day gold prices.

Another point to note is that gold prices may differ from state to state and city to city depending on demand, regional and local taxes, and transportation costs. So, for instance, the per gram rate of gold in Delhi might be different from the rate one gets in Mumbai.

There are several factors that determine the price of gold in India:

• Gold Reserves:

In many countries, including India, the central bank holds currency and gold reserves. There is a strong interconnection between the gold reserves and the strength of currencies trading on foreign exchanges. When central banks of large countries start holding gold reserves, the prices of gold shoot up.

• Economic Forces:

Like any other commodity, the demand and supply of gold determine the price of the yellow metal. Higher demand conditioned with low supply results in higher gold prices. Similarly, the prices are pushed down in the case of oversupply or low demand.

• Inflation:

Because of its steady character, gold is used to protect against inflation. So, when inflation is high, the demand for gold also goes up, forcing the gold prices to go up.
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• Interest Rates:

When the rate of interest is high, customers sell gold in exchange for cash. A higher supply of gold means reduced gold price. Conversely, lower interest rates results in increased price of the metal.

• Jewellery Market:

In India, gold is bought during weddings and festivals like Diwali. With increased consumer demand the price of gold goes up. In addition, gold prices are also affected by the following factors:

• Fiscal and trade deficits of the country
• Foreign exchange rates
• The central bank’s monetary policy including printing of money, purchasing and selling of gold, etc.


Even though gold is purely treated as a commodity, it has a profound impact on the value of world currencies. It also plays an important role in the foreign exchange markets, affecting both local and international economies.

There are several banks and NBFCs like IIFL Finance that come with various gold loan schemes for their customers. Since the gold is pledged in these types of loans, it involves low-interest rate and minimal paperwork. IIFL Finance offers gold loans through its vast nation-wide branch network as well as through a fully digital process via its website and mobile app that helps prospective borrowers to take out a loan without visiting the company’s branch.

IIFL Finance digital process ensures it approves gold loans within minutes. Moreover, it sanctions loan amounts starting from Rs 3,000 with no upper limit depending upon the quality and quantity of gold pledged.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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