Gold loan vs personal loan: which is better? | Personal finance news


Everyone needs financial help from time to time, and there is no shame in looking for loan options to get it. However, there are many borrowing options, and you might have a hard time choosing between them.

Borrowers typically use gold loans and personal loans for emergency cash injections due to their quick disbursement and no restrictions on the end-use loan proceeds. Although they check for bad credit scores when applying for gold and personal loans, creditworthiness is less of a factor here than with more prestigious loans.

Below we have provided a full comparison of personal loans and gold loans so that you can make an informed decision on what would be best in an emergency.

Definition of a Gold Loan and a Personal Loan

Gold loan – You have a better idea of ​​what a gold loan is when it is referred to by its other name: a “loan for gold”. Essentially, the borrower sets up his assets in gold and is given a percentage of that coin’s value as the loan amount, creating what is called a secured loan. From there, the borrower pays monthly installments until they repay the loan, at which time the lender returns the deposited gold.

Personal loan – A personal loan (like a signature loan) works the same way as a gold loan, except that it is an unsecured loan, which means that it does not have any collateral. Without putting something to secure repayment, the loan amount will usually be much lower and it will be more difficult for the loan seeker to get the loan approval.

During the application process for both loans, the loan officer will look at the applicant’s credit profile, but this is usually not such a big factor in the approval of gold loans.

Gold loan vs personal loan

Interest rate

Lenders charge higher interest rates based on the repayment of a loan. For example, gold loans tend to be more profitable than personal loans or other unsecured loans, so their interest component skyrockets.

On average, the interest amount on a gold loan can vary between 7.5% and 29%. In contrast, personal loans range from 9% to 24%. However, risk assessment plays a big role in the interest rate of a loan. Gold loans have lower interest rates because it is a secured loan; the borrower puts in place guarantees to reduce his risk of non-payment. At the same time, personal loans will eventually have a higher interest cost due to their unsecured nature.

term of the loan

The term of the loan is the period that the lender grants the borrower to repay the loan. Personal loans tend to have terms ranging from one to five years, while gold loans offer much shorter repayment periods ranging from three years to seven days, depending on the loan amount.

While higher loan terms give you more leeway to pay off your debt, it also leaves time for interest to accumulate, which increases the overall amount you owe. The shorter loan term offered by gold loans can be stressful, especially if you get a loan with a high interest rate. But for borrowers who are convinced that they can pay off their loan in a short period of time, the short term of a gold loan may prove to be the most profitable option in the long run.

Reimbursement options

A personal loan and a gold loan will allow the borrower to repay his loan with EMI (Equated Monthly Monthly Monthly) to avoid most of the repayment constraints. This is a fixed monthly income repayment term that the borrower and lender have agreed upon in advance; however, gold loans have more flexible repayment options. They welcome customers better because secured loans ensure repayment on time.

For example, some gold loans have an interest-only repayment option that allows them to pay interest until the due date, where they will start paying the principal amount. Another repayment option is to repay the interest up front, leaving borrowers to pay only the principal component at the end of the loan term.

To have the best chance of repaying your loan, gold loans offer options to increase your repayment capacity.

Processing time

Loan seekers will take out gold loan or personal loan in case of financial hardship as lenders can process them in the shortest time. However, they must submit the necessary documents (like proof of income, proof of residency, etc.) with the loan application. While this is a lengthy process in itself, gold loans handle the disbursement of funds more efficiently than personal loans.

When applying for an average personal loan, the lender will examine your credit score with a fine tooth comb to make sure that you are able to repay the loan and determine your personal loan ranges. Obtaining a business loan involves additional steps where the loan-to-value ratio will determine whether your business is worth the financial risk. Since personal loans have a more comprehensive approval process, it usually takes around 2-7 days for your money to be disbursed. Few lenders (except banned illegal lenders) will approve a loan if the borrower’s credit profile is poor.

Unlike a personal loan, when applying for a gold loan, the lender will verify the authenticity of your pledged gold and determine the eligibility of your loan amount from that without your credit score being. intervene at all in the process. So if you are in serious financial trouble, have gold lying around, and have a bad credit history, a gold loan would be your best bet to get a bigger loan amount in the shortest time possible. .

Processing fee

While lenders usually get gold loans out to borrowers as quickly as possible, there are several processing fees that you have to pay before you get your money. While a personal loan has these fees, they are usually limited to service charges, insurance, and processing fees.

With gold loans, on the other hand, you will have to pay the typical processing fees as well as additional fees such as the gold appraisal fee (charged based on the current value of the gold), fees administrative costs, documentation costs, etc. Factoring in these additional costs will allow you to more accurately determine the true cost of applying for a gold loan or personal loan and choose the one that best suits your financial situation.


In a comparison between a gold loan and a personal loan, neither really comes out on top. If you don’t mind a slight delay in disbursing the loan and you prefer a long repayment period with a longer interest rate, go for a personal loan. On the other hand, if you have gold assets to put as collateral and you need a loan that day, even if you get a short repayment period, apply for a gold loan.

However, the best thing about these loans is that a bad credit profile is not an insurmountable strike against the borrower’s account.

(Disclaimer – Brand office content)


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