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. There are many borrowing options, however, and you may have trouble choosing between them.

Borrowers generally use gold loans and personal loans for emergency cash infusions due to their quick disbursement of loans and the lack of restrictions on the flow of end-use loans. Although they check for bad credit ratings when applying for gold and personal loans, creditworthiness plays a lesser role here than in the case of larger loans.

Below, we have presented a comprehensive comparison of personal loans and gold loans so that you can make an informed decision about which one is best during an emergency.

Definition of gold loan and personal loan

Gold loan – You better understand what a gold loan is when it is called by a different name: the gold secured loan. Basically, the borrower exposes his gold assets and receives a percentage of the value of that item as the loan amount, creating a so-called secured loan. From there, the borrower pays monthly installments until the loan is paid off, after which the lender returns the deposited gold.

Personal loan – A personal loan (such as a signature loan) works similarly to a gold loan, except that it is an unsecured loan, meaning they have no collateral. Without any guarantees of repayment, the loan amount will usually be much lower and it will be more difficult for the loan applicant to obtain loan approval.

During the application process for both loans, the lender examines the applicant’s credit profile, but this is generally not such an important factor when approving gold loans.

Gold Loan vs Personal Loan

Interest rates

Lenders charge higher interest rates in line with the payment on the loan. For example, loans for gold tend to have higher repayments than loans to individuals or other unsecured loans, so their interest rate is growing rapidly.

On average, the interest rate on a gold loan can range from 7.5% to 29%. In contrast, personal loans range from 9% to 24%. However, risk assessment plays a large role in the interest rate on a loan. Gold loans have lower interest rates because they are secured loans; the borrower provides collateral to reduce the risk of default. At the same time, personal loans will end up having a higher interest rate due to their unsecured nature.

Loan ownership term

The loan term is the period that the lender gives the borrower to repay the loan. Personal loans usually have maturities of one to five years, while gold loans have much shorter maturities, ranging from three to seven days, depending on the loan amount.

While longer loan terms give you more room to pay off the debt, it also gives you time to accrue interest, increasing the total amount you owe. The shorter loan term that gold loans offer can be stressful, especially if you are getting a loan with a high interest rate. But for borrowers confident that they will be able to repay their loan in a short time, a short-term gold loan may be a more economical option in the long term.

Repayment options

Personal loan and gold loan will allow the borrower to repay their loan using Equated Monthly Installments (EMI) to avoid most repayment restrictions. This is a fixed term for the payment of monthly income, which the borrower and lender have agreed on in advance; however, gold loans have more flexible repayment options. They serve clients better because secured loans guarantee timely repayment.

For example, some gold loans have an interest-only repayment option that allows them to pay interest until maturity, when they start paying the principal. Another repayment option is to pay interest up front, leaving borrowers to pay only the main part of the loan at the end of the loan term.

To get the best chance of repaying your loan, gold loans offer options to increase your solvency.

time of processing

Loan applicants will sign up for a gold loan or personal loan in times of financial trouble because lenders can process them in no time. However, they must provide the necessary documentation (eg proof of income, proof of residence, etc.) along with the loan application. While this is a lengthy process in and of itself, gold loans deal with the allocation of funds more efficiently than loans to individuals.

When applying for an average personal loan, the lender will check your credit rating with a notched comb to make sure you are capable of repaying the loan and to determine the range of your personal loans. There are additional steps involved in obtaining a business loan where the loan-to-value ratio will determine whether your company is worth the financial risk. Since personal loans require a more comprehensive approval process, it usually takes 2 to 7 days to pay off your money. Few lenders (with the exception of unlawfully prohibited lenders) will approve a loan if the borrower’s credit profile is poor.

Unlike a personal loan, when you apply for a gold loan, the lender will verify the authenticity of your pledged gold and determine, based on this, your loan amount matches without your credit rating at all. Therefore, if you have serious financial problems, have gold and bad credit history, a gold loan will be your best option to get a larger loan amount in the shortest possible time.

One-time commission

While lenders usually provide gold loans to borrowers as quickly as possible, this comes with some processing fees that you have to pay before you can receive your money. While these fees are charged for personal loans, they are usually limited to service charges, insurance, and handling fees.

On the other hand, with gold loans, you will have to pay the typical processing fees plus extras like gold appraisal fees (charged based on the present value of the gold), administrative costs, documentation fees, and more. Accounting for these additional costs will allow you to more accurately determine the actual cost of applying for a gold or personal loan and choose the one that best suits your financial situation.


When comparing gold loan and personal loan, neither comes out ahead. If you do not mind a slight delay in the loan repayment and prefer a longer maturity with a higher interest rate, get a personal loan. On the other hand, if you have gold assets that need to be collateralized and you need a loan the same day, even if you have a short maturity period, apply for a gold loan.

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

(Disclaimer – Content of the Brand Desk)

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