Most Nepali households own some gold, and every bank and many finance companies will lend against it within a day. No salary certificate, no CIB drama, no valuer visiting your house. The trade-off is that the loan is smaller than you expect, the interest is often paid separately from the principal, and the gold really can be auctioned. This guide covers each step.
Step 1: weighing and purity
The bank weighs your ornaments and tests purity. Two things reduce the number you started with:
- Stones, beads and threads are removed from the weight. Only the metal counts.
- Purity is tested with a touchstone or an XRF machine. Nepali ornaments are usually 22 carat (tejabi) at about 91.6% gold, occasionally 24 carat (chhapawal). The bank converts everything to a fine gold equivalent.
Weights are quoted in tola by jewellers and in grams by banks. One tola is 11.664 grams. A "5 tola" set is 58.3 grams gross; after stones and at 22 carat it might be 51 grams of fine gold, about 4.4 tola.
Step 2: the bank's rate, not the market rate
Here is the part that surprises people. The bank does not value your gold at the price FENEGOSIDA announces each morning. It uses its own reference rate, reviewed daily or weekly and set 5 to 15% below market to protect against a price fall.
Then it applies a loan-to-value ratio of about 70%, in line with NRB's cap.
Example, with a market price of Rs 1,80,000 per tola:
- Bank reference rate: Rs 1,62,000 per tola (10% haircut)
- Fine gold: 4.4 tola
- Valuation: 4.4 × 1,62,000 = Rs 7,12,800
- Loan at 70%: Rs 4,99,000
So five tola of jewellery that a shop would buy for around Rs 8 lakh borrows about Rs 5 lakh. Use the gold loan calculator with your own weights.
Most banks cap gold loans per borrower, commonly at Rs 25 lakh, and some set a minimum of Rs 25,000 to 50,000.
Step 3: interest and tenure
Gold loans are usually written for one year, renewable, and are priced at base rate plus 2 to 4%, so 9 to 12% in a typical year. That is far below the 24 to 36% a year charged by a sunchandi pasal or a private lender, and below an unsecured personal loan.
Repayment comes in two shapes:
- Interest-only (overdraft style). You pay interest monthly or quarterly and repay the principal, or renew, at the end of the year. Rs 5 lakh at 10% costs about Rs 4,167 a month in interest.
- EMI style. Principal and interest in equal monthly instalments over one to three years.
Interest-only is popular because the monthly outgo is small, but nothing gets repaid until you find a lump sum. If you are using the loan for a wedding or hospital bill you will repay from savings, that is fine. If you are funding a business, an EMI schedule keeps you honest.
Step 4: fees and paperwork
Expect a valuation or appraisal fee, sometimes a flat Rs 500 to 1,000, and a small processing charge. You will sign a pledge agreement and receive a receipt listing every item with its weight and purity. Keep it; it is the only proof of what you handed over. The gold is stored in the bank's vault and is insured while there.
Documents: citizenship, a photo, and, if the gold is in a family member's name, their consent. That is all.
The risks
- Margin call. If gold prices fall sharply, the bank can ask you to add gold or repay part of the loan to restore the 70% ratio. Rare in the last decade, but written into every agreement.
- Rollover creep. Renewing an interest-only loan year after year is easy, and some households end up paying interest for a decade on a debt that never shrinks.
- Sentimental cost. The ornaments returned are the same ones you deposited, but if you default, they are not returned at all.
Auction rules if you default
If interest goes unpaid or the loan is not repaid or renewed at maturity, the bank follows a set sequence:
- A written reminder and phone calls, usually within 30 days of the missed date.
- A formal notice giving a final period, commonly 15 to 35 days, to settle.
- A public auction notice in a national newspaper, typically with a 35-day window.
- Auction of the gold at or above the bank's reserve price.
Any amount recovered above your outstanding loan, interest and costs is returned to you. Any shortfall is still owed. Banks would much rather renew than auction, so if you are struggling, walk into the branch before the notice stage; a renewal with interest paid is almost always granted.
Gold is the cheapest short-term credit most families have. Compare gold loan rates on our gold loan page, and if the need is longer than a year or two, read our personal loan vs credit card guide for the alternatives.