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Golden Finances: The Pros and Cons of Gold Loans and Personal Loans

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Created on
January 25, 2023


What’s Inside

Facing sudden expenses like weddings or medical bills? Turning to credit options - like gold and personal loans - can help you weather these expenses without dipping into your emergency fund.

While these are the most popular credit options, questions like whether a gold loan is a secured or unsecured loan and the risks of personal loans have plagued many potential borrowers.

What is a Gold Loan?

A gold loan is a secured loan sanctioned against the gold assets (jewellery and coins) you pledge to the lender. Lenders follow RBI guidelines and offer up to 75% loan value. The pledged gold stays with the lender as collateral, which can be auctioned on default.

Advantages and Disadvantages of Gold Loans

Advantages of Gold Loans 

Disadvantages of Gold Loans 

Affordable interest rates

Fluctuating gold prices and the gold’s quality can affect the loan amount 

Easy application and swift processing 

Defaulting on the loan can result in loss of gold

Flexible repayment structures 

High margins since the LTV ratio doesn’t cover 100% of the gold’s market value

No credit history required


What is a Personal Loan?

A personal loan is an unsecured loan, sanctioned without a collateral. Eligibility for the loan is based on your credit score, credit history, repayment capacity, employment status, and any other eligibility parameter set by the lender.

Advantages and Disadvantages of Personal Loans

Advantages of Personal Loans

Disadvantages of Personal Loans 

Collateral-free loans

Processing fees of up to 4% increase your cost of borrowing

Relatively lower interest rates compared to other unsecured credit options like credit cards 

Strict eligibility criteria, including minimum income parameters

Timely repayments can help improve your credit score and build a credit history

A good credit score is a prerequisite for lower interest rates

Multipurpose loans without end-use restrictions

Missed EMIs and payment defaults can impact your credit score, affecting future credit prospects 

Gold Loan Vs. Personal Loan: A Quick Assessment


Gold Loan

Personal Loan 


Gold loans are secured loans sanctioned against pledged gold items.

Personal loans are collateral-free, unsecured loans.

Credit Score

Not considered.

A credit score of 750 or more required. 

Loan Amount

Banks and NBFCs can lend up to 75% of the gold’s market value.

Personal loans can range up to Rs. 25 Lakhs or more. However, the loan amount depends on the borrower’s repayment capacity, credit score, etc. 

Interest Charged 

Interest rates start from 5.88% p.a.

Interest rates start from 10.49% p.a.

Loan Tenure

Short tenures ranging from 6-36 months.

Long tenures ranging up to 5 years.

Processing Time

Processed and disbursed within hours.

Processed and disbursed within 7 days.

Repayment Terms 

Multiple payment options including one-shot payments, EMIs, bullet payments, or deferred principal payment.

Fixed EMIs need to be paid for the selected repayment duration. 

Foreclosure Charges

Most lenders waive off foreclosure charges.

Personal loan foreclosure fees can range up to 6% of the outstanding loan amount.

Gold Loan or Personal Loan: Which is Better?

Gold loans and personal loans have pros and cons. Gold loans offer lower interest rates without credit score checks, but you risk losing assets. Personal loans offer unsecured funding with longer repayment windows, but defaulting on them can damage your credit score.

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Frequently Asked Questions

1. What exactly is a gold loan, and how does it differ from a personal loan?

A gold loan is a secured loan sanctioned against the gold assets one has to pledge with the lender. Unlike personal loans, gold loans require collateral.

2. Which is cheaper: gold loan or personal loan?

The secured nature of gold loans makes their interest rates much more cost-effective. Personal loans come with a higher interest rate given the lender’s increased lending risk.

3. How do collateral requirements differ for gold and personal loans?

Gold loans cannot be sanctioned with gold collateral. The loan amount is calculated as a percentage of the current market value of the pledged gold. However, personal loans don’t require any collateral.

4. How do credit scores affect eligibility for these loans?

Gold loans don’t consider credit scores. A credit score of 750 and above is favoured for a personal loan. The higher your credit score, the better your chances at lower interest rates.

5. What are the risks and benefits of choosing a gold loan versus a personal loan?

Gold loans offer low-interest, short-term credit, even with poor credit score. Risk: losing assets for missed payments. Personal loans: longer tenure, no collateral, but default affects credit score.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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Golden Finances: The Pros and Cons of Gold Loans and Personal Loans


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