Gold Loan vs Personal Loan: Which Loan Option Is Better?

byjitendra7.singhLast Updated: August 31, 2023
MUDRA Loan Interest Rate
MUDRA Loan Interest Rate

When people encounter urgent financial needs-like unexpected medical emergencies, sudden job loss, or business expenses-they look for ways to get the required funds. In such situations, two common options come into play: Gold Loan and Personal Loan. But how to decide which option best fits your requirements?

In this blog, we offer a comprehensive comparison between the features of gold loans and personal loans, enabling you to make a well-informed decision that suits your circumstances. Now, let us define each loan type to gain a better understanding before proceeding with the gold loan vs personal loan comparison.

What is a Gold Loan?

When you need funds quickly, a gold loan, also known as loan against gold, can be a secure option. By using your gold jewellery or coins as collateral, you can easily gain funds that you require in exchange for your gold. The loan amount that you will receive is determined by the value of your gold. Gold loans are typically short-term loans and are processed quickly as compared to other loan types. The lender keeps your gold as security until you repay the principal amount and the interest entirely.

Banks and NBFCs (Non-Banking Financial Corporations) provide gold loans to their customers. Both these financial institutions must adhere to the regulations set by the Reserve Bank of India. As per the rules of RBI, one can get a gold loan of up to 90% of the value of the gold that is pledged as collateral.

What is a Personal Loan?

If you opt for a personal loan, you can borrow money from a bank or financial institution without having to provide any collateral, unlike gold loans, which require you to pledge assets like gold jewellery. Instead, the lender assesses your loan application based on factors such as your creditworthiness, income, and repayment capability.

The interest rates on personal loans are usually higher because the lender takes more risk. The best part is that you can use the loan for various purposes, like paying for education, travelling, or handling emergencies.

Gold Loan vs Personal Loan: Which One Should You Choose?

This comparison between gold loans and personal loans can be done based on various key factors such as loan tenure, loan amount, eligibility, interest rates, loan disbursal time, and processing fees.

Loan Tenure

Gold loans usually have shorter durations, typically ranging from a few months to a few years. Since these loans are backed by collateral, lenders prefer quicker repayment to minimise risk. In contrast, personal loans offer more flexibility with longer repayment periods, spanning from 1 to 5 years or even more, depending on the lender’s policies. If you need a quick solution for a temporary financial need, a gold loan might be suitable. However, if you require a larger loan amount and prefer a longer time to repay, a personal loan could be the better option.

Loan Amount

Gold loans are approved based on the value of the pledged gold, resulting in quick processing, but the borrowing limit may be restricted. On the other hand, personal loans consider factors like income, credit score, and repayment capacity, leading to higher borrowing limits for financially stable individuals. A significant drawback of getting a gold loan is that if you fail to repay it, the lender can sell your gold in order to recover the loan amount. Gold loans usually range from Rs. 10,000 to Rs. 15 lakhs, while personal loans can extend up to Rs. 20 lakhs or more, making them a better choice for larger loan amounts.


Gold loans have a wider acceptance, allowing individuals with limited income or no credit history to qualify. Lenders mainly consider the value of the gold, making it easier for those with lower credit scores to get approved. On the other hand, personal loans, being unsecured, have stricter eligibility requirements, including income, credit score, and stable employment evaluation, making it difficult for people with poor credit or irregular income to qualify.

Interest Rates

Gold loans, being secured loans where you pledge your gold as collateral, typically come with lower interest rates compared to personal loans. This makes gold loans an appealing choice for those seeking funds at more affordable costs. On the other hand, personal loans, being unsecured with no collateral, generally have higher interest rates due to the higher risk factor for lenders. The interest rates can also vary based on factors like the loan amount and repayment tenure.

Loan Disbursal Time

Gold loans are generally processed more quickly than personal loans because they require less documentation. This makes gold loans a good option for people who need money quickly, as they can be approved and disbursed quickly. Personal loans, on the other hand, may take longer to process because they involve a more comprehensive assessment of creditworthiness and income verification.

Processing Fees

Upon comparing gold loans and personal loans, it must be noted that personal loans typically have a processing fee of 2% or more, while gold loans have a lower fee of around 1% due to the gold collateral. Prepayment charges for personal loans can be up to 5% or higher, while for gold loans, it’s approximately 1%. Consider additional costs for gold loans, such as gold valuation, documentation, and administration fees. It’s essential to carefully analyse the processing fees for both loan types to secure the most favourable terms.

Tips for Choosing the Right Loan

  1. Evaluate your financial requirements and urgency for funds. A gold loan is suitable if you have assets to pledge and want lower interest rates.
  2. If you prefer not to pledge assets, opt for a personal loan, but ensure you have a good credit score for better terms.
  3. Only borrow what you can comfortably repay, considering your income and expenses.
  4. Shorter tenure saves on interest but may lead to higher monthly payments.
  5. Research different lenders, compare terms, and be aware of any hidden charges or fees. Carefully review and understand the terms and conditions of the loan before you sign any paperwork.

Final Word

To choose the right loan for your needs, consider the key differences between gold loans and personal loans. Gold loans offer lower interest rates and more accessible eligibility criteria, while personal loans provide higher borrowing limits and longer repayment periods. Carefully evaluate your financial situation, needs, and preferences to determine the most suitable loan option for you.


What are the key differences between a Gold Loan and a Personal Loan?

The main differences are:
  1. Collateral: A Gold Loan requires you to pledge your gold as collateral, whereas a Personal Loan does not require any collateral.
  2. Interest Rates: Gold Loans generally have lower interest rates compared to Personal Loans because they are secured loans.
  3. Loan Amount: The loan amount in a Gold Loan is determined by the value of your gold, while a Personal Loan amount depends on your income, credit history, and repayment capacity.
  4. Approval Process: Gold Loans have a quicker approval process as the collateral reduces the lender’s risk. Personal Loans may take more time due to credit checks and verification.

Which loan is suitable for urgent financial needs?

A Gold Loan is more suitable for urgent financial needs because of its quick approval process. If you have gold to pledge as collateral, you can get the funds faster compared to a Personal Loan, which may involve a more extended application and approval process.

Are Gold Loans risk-free since they require collateral?

While Gold Loans are considered less risky for lenders due to the collateral, there is still a risk involved. If you are unable to repay the loan, the lender has the right to sell your pledged gold to recover the outstanding amount. Therefore, it is essential to borrow only what you can comfortably repay.

Can a Personal Loan be a better option for borrowers with no gold assets?

Yes, a Personal Loan can be a better option for individuals who do not possess significant gold assets or do not want to risk their valuables. Since it doesn’t require collateral, anyone with a stable income and good credit history can apply for a Personal Loan.

What is the typical repayment period for Gold Loans and Personal Loans?

Gold Loans usually have shorter repayment periods, ranging from a few months to a couple of years. Personal Loans, on the other hand, often offer more extended repayment terms, ranging from one to five years, depending on the lender’s terms.

How does the credit score impact these loans?

For a Gold Loan, the credit score is not a significant factor since the loan is secured by the collateral. However, for a Personal Loan, a good credit score is essential as it determines your creditworthiness and impacts the interest rate and loan amount you can get.

You May Also Like