Because many borrowers need speed and simplicity, numerous borrowers continue to use gold loans, preferring them in part due to the speed of funds being disbursed and the lower documentation requirements. Personal loans, although unsecured and requiring no collateral from the lender, offer a longer repayment route with greater flexibility in the use of the funds. Now, both loans and others are found in user-friendly app interfaces where customer demands and timelines are met with just a couple of taps, leading to timely financial assistance at a borrower’s need.
Similar to many types of loans available in the market to suit your needs, personal loans and gold loans are two of the most popular. A gold loan is a secured loan, while a personal loan is an unsecured loan. So, how do you decide between a gold loan vs a personal loan? To help you answer this question, this article will cover a gold loan vs personal loan comparison.
First, we will look at gold loan vs personal loan interest rates, and we will also touch on the fundamental difference between a gold loan and a personal loan.
What Is a Gold Loan?
In a gold loan, you pledge your gold jewellery or gold coins with a lender as security (collateral). In return, you will receive cash, usually up to 75% to 80% of the current market value of your pledged gold. The current market value of your gold will take into account the purity of the gold you have pledged and the prevailing market price.
You can repay the loan in monthly instalments, and once you have fully repaid your loan, your gold will be returned to you. Because the loan is secured against your gold, it is regarded as a secured loan.
There are typically no tax benefits for taking a gold loan unless you are using the cash to purchase, build, or renovate a house or for business purposes.
- If the gold loan is used for home renovations, you can claim a tax deduction of up to ₹1.5 lakhs in one year under Section 80C.
- If the loan is used for the purchase of a house or building one, you can claim as high as up to ₹2 lakhs in one year under Section 24.
Advantages and Disadvantages of a Gold Loan
- You are free to spend the loan amount on anything – there are no conditions!
- Compared to other short-term loans, interest rates are quite low.
- Loan disbursement is quick and easy.
- The application process does not require an excellent credit score.
Disadvantages
- If you default, the lender will sell your gold to recover their money.
- The loan amount is limited to the lender’s own rules; however, most will give you only up to 80% of your gold value.
What is a Personal Loan?
- A personal loan is a loan that is not secured by any type of collateral. That is why it is called an unsecured loan. The loan is based on your credit score, income, type of work, and the ability to make the repayments. If the lender thinks that you will pay, they may approve you for a loan.
Pros and Cons of Personal Loans
Pros
- You don’t need to provide any type of collateral for the loan.
- Interest rates are lower than a credit card.
- You can take many small debts and consolidate them into one personal loan, and that way, you only have to repay the one loan.
- A personal loan could improve your credit over time if you use your loans wisely.
Cons
- As there are with all loans, a personal loan could come with fees and payment charges. The fees may be around 1% to 6% of the loan value.
- If you have a poor credit score, you probably will not receive the loan, or you will be offered a higher interest rate.
- If you have missed EMIs on loans in the past, the lenders might note this.
- There are no true tax benefits on personal loans. However, if the loan is for buying a house, renovating, or for some business purposes, then you may be able to claim some tax benefits.
Gold Loan vs Personal Loan – Key Differences
Both loans generally help you manage short-term financial needs, but they vary significantly when it comes to eligibility, processing, and repayment options. Your choice of which is right for you will depend on your circumstances, available assets, and credit record.
| Key Difference | Gold Loan | Personal Loan |
| Type of Loan | Secured—requires you to pledge gold as collateral | Unsecured – no collateral is required |
| Loan Approval Speed | Usually approved and disbursed quickly, sometimes within a few hours | May take longer due to document checks and credit evaluation |
| Eligibility Criteria | Based on the value and purity of gold | Based on income, credit score, job stability, and repayment capacity |
| Loan Amount | Depends on gold’s value (up to 75–80% of market value) | Based on your income and credit profile |
| Credit Score Requirement | Not mandatory – even those with low or no credit score can apply | A high credit score increases your chances of approval and a better interest rate |
| Interest Rates | Generally lower than personal loans due to the secured nature | Varies based on credit score – may be higher than gold loans |
| Risk of Asset Loss | Yes – if you fail to repay, your gold can be auctioned | No asset risk since no collateral is required |
| Usage Restrictions | No restrictions – funds can be used for any purpose | No restrictions – suitable for any personal need |
| Tax Benefits | Possible only if used for home purchase, renovation, or business | Same – only eligible if funds are used for home or business purposes |
If you have gold available and want quick funds without the stress of a credit check, then a gold loan may be more convenient for you. However, if you prefer not to put any of your assets at risk and have a good credit record, then a personal loan may be more appropriate for your needs. When you are aware of some of the primary differences between the two loans, it gives you the best opportunity to make an informed decision on which option is best for you based on your needs and situation.
Gold Loan vs Personal Loan Interest Rate
While both loans can provide you with fast access to cash, they differ widely in terms of cost, eligibility, and risk. Understanding the differences in terms and interest rates, eligibility, and borrowing costs can help you make a more informed financial decision.
Typical Interest Rates in India (Banks & NBFCs)
| Loan Type | Public Banks | Private Banks | NBFCs & Fintechs |
| Gold Loan | 8.75% – 11% p.a. | 9.3% – 18% p.a. | 12% – 27% p.a. |
| Personal Loan | 10.5% – 13.5% p.a. | 11% – 18% p.a. | 14% – 24%+ p.a. |
Why Gold Loans Typically Have Lower Rates
- Secured by Gold: The primary reason gold loans have lower interest rates is that they are collateralised by your gold, whether that be jewellery or coins. This security reduces the risk vendors face, which allows them to provide competitive interest rates.
- Quick Option to Liquidate: In the event of default, banks can auction the pledged gold to limit their loss. This gives lenders the confidence to lend at a lower rate.
- Low Documentation: Gold loans do not take your credit history, and do not require income documentation, so processing is faster and cheaper for the lender.
- Shorter Tenures: Gold loans tend to be for a 3-24-month term, which lowers the lender’s risk because of a shorter time exposure and further lowers interest rates.
- Liquid Market: The gold loan market in India has a lot of competition, especially with public sector banks, which have schemes that offer lower rates for their loans, which holds this market in check.
How Credit Score Affects Personal Loan Interest Rates
- Personal loans are unsecured, meaning lenders rely on your credit score (CIBIL or Experian) to assess repayment capability. The better your score, the lower the interest you could receive.
- Borrowers with scores above 750 are most often the most favourable rates, special rates, and faster reprisal.
- Borrowers with scores below 650 could end up with higher rates or sometimes no access to loans at all.
| Credit Score Range | Expected Interest Rate | Loan Approval Chances |
| 750–900 | 10% – 12% p.a. | Very high |
| 700–749 | 12% – 15% p.a. | High |
| 650–699 | 15% – 18% p.a. | Moderate to low |
| Below 650 | 18% – 24%+ p.a. (if approved) | Low |
Comparing Gold Loan vs Personal Loan Costs
Let’s assume you need a loan of ₹1,00,000 for a 2-year tenure:
| Loan Type | Interest Rate | Monthly EMI (₹) | Total Interest Paid (₹) | Total Repayment (₹) |
| Gold Loan | 10% p.a. | ₹4,609 | ₹10,416 | ₹1,10,416 |
| Personal Loan | 14% p.a. | ₹4,783 | ₹14,792 | ₹1,14,792 |
Result: You save over ₹4,300 in interest with a gold loan at 10% p.a. compared to a personal loan at 14% p.a.
Which Is Easier to Get Approved?
Gold Loan
Gold loans are the quickest way to get a loan. If you own gold jewellery or coins, you can walk into a bank or NBFC and get your loan approved and disbursed within a matter of hours, or even on the spot.
The quick delivery of loans is because of the minimal amount of paperwork, and it really only involves the basic KYC documents like ID and address. You do not need to provide proof of income or even show them your credit profile.
With gold loans, the primary effort is to assess the value and purity of the gold itself, and once that is done, the loan is disbursed almost immediately.
Personal Loan
Unlike gold loans, personal loans require longer waiting times. Approval can take 1-7 working days, depending on how fast you submit documentation, and lenders will assess your income, job stability, and credit score, all while ensuring maximum accuracy. In other words, it is a big process. However, if you are a trusted, loyal customer or take advantage of a pre-approved offer from your bank, you may have the option of instant digital disbursal, particularly via mobile app or internet banking, as many banks and fintechs are beginning to offer this.
Using a Gold Loan vs Personal Loan Calculator
When making a decision about whether to pursue a gold loan or a personal loan, using an online loan calculator will help you to easily see and compare the total loan costs, EMIs (monthly payments), and interest outgo of each option.
Gold Loan Calculator:
- You enter the weight and purity of your gold (e.g., 22K, 24K)
- The calculator will estimate the maximum amount you qualify for based on both the current gold rate and the lender’s Loan-to-Value (LTV) ratio (usually between 75%–80%).
- The calculator will also show you the EMI and total repayment based on your chosen tenure and interest rate.
Personal Loan EMI Calculator:
- Enter the loan amount, interest rate, and tenure.
- The calculator will show you the amount you will pay monthly and the total interest you will pay over the loan term.
Why It’s Useful:
- You can compare both loans side-by-side.
- You can see which loan is more affordable in terms of EMI and in terms of interest.
- It is also useful for checking eligibility limits gold loan is calculated using the gold value, while personal loan eligibility is based on income and credit.
Example:
If you need ₹1,00,000 for 2 years:
- A gold loan at 10% p.a. could give you an EMI of ~₹4,609
- A personal loan at 14% p.a. is estimated to have an EMI of ~₹4,783
- A calculator would show you that the gold loan will save you ~₹4,300 in total interest
Tip:
Go to bank sites and use the official calculators like:
- HDFC Gold Loan Calculator
- ICICI Personal Loan EMI Calculator
- Bajaj Finserv Loan Comparison Tool
Gold Loan vs. Personal Loan—Which is Better?
The decision between a gold loan and a personal loan ultimately comes down to your circumstances and resources. If you have gold that you would use as collateral for a gold loan and have a low credit score, a gold loan is advisable because it doesn’t require credit history. They are processed quickly and less expensively than a personal loan. Conversely, if you do not have gold to pledge, you may be compelled to seek a personal loan, although it may not be as affordable or as secure as a credit check, nor processed as quickly.
In regard to repayment tenure, a personal loan would normally be for a longer term, while a gold loan is expected to be for a shorter term. But a gold loan may work out cheaper, and you will incur less interest; however, you must be comfortable repaying it quickly.
- When it comes to types of loans, it is easy for borrowers to get confused. Here’s a simple way to think about it:
- Gold Loans are secured loans, so they have lower interest rates, less documentation, and the fastest disbursal.
- Personal Loans are unsecured loans, and as such, are always going to be more contingent on your credit score and income level, and more importantly, they are more expensive.
- Overall, the fees associated with gold loans will generally be lower than those associated with personal loans.
- The point to understand is that a good CIBIL score (the closer to 900, the better) will improve your chances of getting a personal loan at a reasonable rate. A better score will also improve the terms of your gold loan, although this is not necessary.
Conclusion
Deciding between a gold loan and a personal loan is largely based on your specific needs, the assets you have available, and the time-sensitive nature of the funds needed. Each type of loan has its own merits, and therefore, the right loan can be very personal.
If you own gold and require fast processing with minimal paperwork, a gold loan may be best, especially if your credit score is low… a gold loan may provide a lower interest rate and provide faster approval. Conversely, if you do not have collateral but have a good credit score and steady income, a personal loan may provide more flexibility, length of tenure and no risk of access to your assets.
The critical aspects to evaluate are interest rate, credit score, documentation, and repayment period. Be sure to compare the same aspects and consider even more lenders and their offerings.
To make this process easier, be sure to visit our Gold Loan vs Personal Loan Calculator, where you can compare monthly EMI, total interest and total repayment side by side. You may also wish to contact a financial expert who can help provide more tailored advice.
The best loan is ultimately one that meets your current needs while maintaining your financial future.
FAQs
1. Is it possible to simultaneously have a gold loan and a personal loan?
Yes, it certainly is possible to have both a personal loan and a gold loan at the same time, as long as you meet the eligibility guidelines for both types of loans. Lenders will examine factors such as your income level, existing EMIs, credit score, and your overall repayment ability before approving loans of any kind. If you have gold available to pledge and you meet the personal loan income criteria, then you can take both loans at the same time. We would advise you to ensure you have the ability to service both loans comfortably.
2. Which type of loan has lower EMIs – a gold loan or a personal loan?
Gold loans usually come with lower EMIs than personal loans. The reason for this is that gold loans are a secured type of personal loan, and the collateral (there is a gold asset pledged) reduces the risk to the lender altogether, which therefore leads to a more competitive rate of interest. Conversely, personal loans are unsecured and usually have higher rates of interest. However, whether a gold loan has lower EMIs than a personal loan can’t be determined because the EMIs depend on the amount of loan taken and interest rate and tenure. Therefore, it is best to compare in the form of an online EMI comparison calculator!
3. What happens if I default on my gold loan?
If you do not repay your gold loan on time, the lender is entitled to recover the dues by auctioning off the pledged gold. Usually, lenders offer several reminders, as well as a short grace period before starting the auction process, to which a default likely would not only mean the loss of your gold asset, but could negatively affect your credit score rating (and ability to obtain future loans). Accordingly, only borrow what you can comfortably throttle.
4. Is my gold safe when I take a gold loan?
When you take out a gold loan, it is generally quite safe at a trustworthy bank or NBFC. Lenders will keep pledged gold inside the lender’s vault, which is usually very secure, and often insure the gold for loss due to theft, fire and similar destructive properties. Well-known and reliable institutions use great care to weigh and check the purity of gold and document with great precision in a receipt what the client brings in. Always check the background of the lender you are considering, and make sure to have proper documentation before giving the lender your gold.
