In a gold loan, you pledge your gold jewelry or coins with a lender and receive a loan amount based on the gold's current market value (typically 60-75% of the gold value). The gold is stored securely by the lender until you repay the loan in full. Once repaid, your gold is returned. If you default, the lender has the right to auction the gold to recover the loan amount.

Gold loans are secured by a tangible, liquid asset, which significantly reduces the lender's risk. This lower risk translates to lower interest rates, typically 7-12% compared to 12-24% for unsecured personal loans. The easy liquidation of gold as collateral also means faster approval and disbursement with minimal documentation.

If you miss payments, the lender will first charge penalties and attempt to contact you for resolution. If the loan remains unpaid beyond the tenure plus any grace period, the lender can auction your pledged gold to recover the outstanding amount. To avoid losing your gold, communicate with the lender early if you're facing financial difficulty—many offer restructuring options or tenure extensions.