Personal Loan vs Gold Loan: What to Choose?

Loan is considered to be a biggest rescuer to meet emergency need of money that may arise anytime to anyone. But many a times a simple question comes to mind, whether gold loan or personal loan should be taken. In case of gold loan, the borrower has to keep gold as collateral with the lending institution; banks or gold loan companies.

In this article, we will discuss the differences between personal loan vs gold loan. The following 4 factors will help readers of the article to decide which loan option is better between the two.

(1) Loan Approval

Credit score plays a very important role for unsecured personal loan; in addition to the applicant’s monthly income, job profile, past loan history. However in case of gold loan, which is a secured loan, credit score doesn’t matter. So a person with bad credit score can get gold loan but chances of personal loan approval are very low. And in such scenario, gold loan is helpful. Also the processing time of personal loan is typically higher although nowadays applicant can get loan amount disbursed in 48 hours.

(2) Interest Rate

Interest rate on a personal loan varies depending on the applicant’s credit score and individual lender’s terms and conditions. However the average is over 10% per annum which may further be lower in case of public sector financial institution.

However in case of gold loan, interest rate is depending on the value of gold, repayment options and time. But the interest rate for gold loans is lower in comparison to the personal loans for applicant’s with poor credit scores.

(3) Loan Amount

Personal loan amount is dependent on the repayment capacity and the repayment time period. But the loan amount is decided based on the value of the gold deposited with the lender and the predefined loan to value ratio set by the lender, in case of gold loan. As per Reserve Bank of India guidelines, the loan to value ratio should not be greater than 75%. So applicant can even get loan of 1.5 crore.

(4) Loan Repayment Time

The minimum tenure of personal loan repayment is 1 year and maximum of 5 years. But it can be extended to more than 5 years depending on the case. The maximum repayment term for gold loans is 3 to 5 years. This increases the monthly EMI as for short tenured loan the EMIs are always on a higher side.

Also, processing fees is not charged in case of gold loan but is charged for personal loan.


Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].

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