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Gold Loan or Personal Loan: Which is the better option?

11 Oct 2021 by Team FinFIRST
Gold Loan or Personal Loan: Which is the better option?

Know once and for all whether to go for a gold loan or a personal loan

Inevitably, at some point in your life, you will require a loan. Hopefully, it will be a planned eventuality instead of an unplanned one – which usually means an emergency, and that’s hardly something to look forward to. Either way, you will be confronted with the option of taking either a personal loan or a gold loan (considering that Indians happen to be the most gold-happy people on the planet). 

Both loans come with their own set of advantages and disadvantages. Let’s settle, once and for all, which one you should choose. 

What is a gold loan?

Simply put, a gold loan is a secured loan given against the amount of gold that you pledge. The quality and quantity of the gold are assayed, and the loan is provided against it. Since this is a secured loan, the interest rates are usually low. 


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The Good 

  • Low-interest rates: Since there is the security provided in the form of gold, the interest rates offered are usually low, starting from as little as 7.5%. 
  • Pay as you like: There is a wide range of flexible payment options available with gold loans. You can even repay the loan early if you have the resources to do so. 
  • Quick processing: There’s very little paperwork required since you provide collateral (in the form of gold). So, your credit history also becomes irrelevant. You can expect to get a loan very easily. 

The Bad 

  • High margin: You will get a loan based on the gold you provide, but not the entire amount – only up to 75% of the value of the gold you pledge. The 25% is the safety margin the lender keeps if you cannot make the payment. 
  • Short term: Gold loans are usually very short-term (up to 3 years). Therefore, payments can be a little tricky, so this is better suited for emergencies when there’s no other option.
  • Risk of asset loss: This is a severe drawback, where you risk the loss of an asset (gold) that serves as a mighty hedge to your funds. 

What is a personal loan?

A personal loan is an unsecured loan where you are not required to offer collateral. Instead, YOU are the collateral, and your credit score gauges this. Since no tangible collateral is provided, the terms of the loan are usually more stringent.

The Good

  • No collateral: This is a godsend for up-and-coming individuals with faith in themselves and their work ethic. You are not required to put up ANY collateral to avail of a personal loan. 
  • Spend as you like: Unlike specific loans (home, vehicle, etc.), a personal loan can be used at the discretion of the individual availing of the loan. 
  • Quick disbursal: Granted, there’s a bit of paperwork involved, but after the loan is approved, you can expect the money in your account within 48 hours. Your plans won’t have to wait for more than a couple of days. 

The Bad 

  • Prepayment penalty: Got a windfall and want to make a large payment to close your loan early? Okay, but you will be charged a premium for the privilege.
  • High-interest rate: There’s no collateral; only your credit score is considered. So the interest rates can be relatively high. But do not confuse ‘high’ with ‘exorbitant’.
  • Credit score woes: To avail of a personal loan, you must have an excellent credit score, and to maintain this is not only demanding but also tedious.

How to make the right choice for your needs? Choosing between Gold Loan and Personal Loan:.

A personal loan trumps a gold loan simply because you have no asset to lose and long tenure. These are the two most important criteria to consider while taking a loan. Paying back a personal loan in time itself ensures an excellent credit rating, opening up numerous other financial options. Taking a gold loan is an option only when pressed against the wall and need quick relief.



The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision