Personal Loans Vs Gold Loans – Which is cheaper and better option?

Personal Loans Vs Loan Against Gold - Which is best optionPersonal Loans Vs Gold Loans – Which is cheaper and better option?

If you are in urgent need of money, you might be thinking of taking personal loan or gold loan. These loans can be taken to meet short term to medium term financial commitments of the family. There are pros and cons to both these personal loan and gold loan options. Among these two loan options, which comes with low interest rates? Personal Loans Vs Gold Loans, which is better option?

What is Personal Loan?

If you are already familiar, skip this section. Personal loan is the loan given by bank or financial institution to individuals based on their income. In this case, loan seeker need to provide guarantor for the loan amount. Since there is no collateral security here, banks/financial institutions would charge high rate of interest. Loan tenure would be between 1 year to 7 years period.

Also Read: Which are the best and cheapest personal loan rates in India?

What is Gold Loan / Loan against Gold?

If you are already familiar, skip this section. Gold loan is the loan given by bank or financial institution to individuals based on gold as  collateral security. Banks / Financial institutions would generally keep some margin for market price fluctuations and would provide loan only up 80% of the total gold jewellery value.

Personal Loans Vs Gold Loans – Which is cheaper and better option?

Interest Rates: Personal loan does not carry any security, hence banks/financial institution would charge very high interest rates. Interest would range between 16% to 30% per annum. On the other hand, gold loans are provided against gold as security, hence these are less risk for banks/financial institutions. Interest rates would be very less and ranges between 12% to 16% per annum. Hence Gold Loans score high in this aspect as they comes with low interest rates.

Processing Charges: Processing fees are reduced now. However still processing charges for personal loans comes at 1% to 3% of the total amount. Gold loans on other hand comes with less charges as there is no complete verification of income nor guarantor required. They are charging in between 0.5% to 1.5% of the total loan amount. Here too, loan against gold jewellery scores high.

Tenure: Personal loans are provided for short term to medium term period (1 year to 7 years period). On other hand, gold loans are provided for short term of 3 months to 3 years and sometimes up to 5 years. Hence which one to opt would depend on your requirement.

Interest rates depend on your risk profile: Personal loans are provided based on your risk profile. If your credit score is high, you might get personal loans with low rates. On the other hand, gold loans are provided considering gold as collateral security. Hence banks/financial institutions would not consider credit profile as basis for deciding interest rates. It would depend on company to company, tenure etc.

Also Read: 6 Smart Ways to close your home loan faster

Can we consider Gold Loan as cheapest option then?

Gold loan is good alternative to personal loans. It helps to pay off short term liabilities, credit card payments and also in emergency need. Business people often take overdraft facility by pledging gold jewelry and use them as working capital requirement for their business. You can even create overdraft facility against gold and it can be used emergency fund on need basis. Gold laons comes with less interest rates and comes with ease process. If you are sure that you would meet the payments regularly, this can be considered as one of the best loan option.

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Personal Loans Vs Gold Loans – Which is cheaper and better option

The Author

Suresh KP

Suresh KP i.e. me have written 1,800+ articles on this blog. I have done by B.Com from Osmania University and then MBA-Finance from Symbiosis University, Pune. I have over 20 years of experience in analyzing various investment options and money saving ideas. I love doing financial planning, Mutual Fund Analysis, Searching long term Stocks for wealth creation, IPOs, reviewing Insurance Products, analysing Health insurance Plans etc.


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  1. Very Well Described, we can see that taking a gold loan has more advantageous as compared to Personal Loan if you have gold with you. But i would like to add one more point, in case someone needed instant money then personal loans are more helpful as few financial institutions like SBI and Bajaj Finserv are providing online application process with instant approval.

  2. Gold Loan is the Better option than Personal Loan. Because you can get Higher EMI's like 13% to17% in personal Loan. But in Gold loan you can get Easy EMI as of your gold value. so always choose Gold Loan which is for better option for everybody.

  3. Nice article. The comparison is just simply awesome. I also agree with all the factors.

  4. My query for long term in my mind is if we buy home loan at the rate of 10 or 10.5 % say from pvt home loan companies, when they collect deposits from investors they offer same or even hight % of interest for fixed deposit. what is the basis and how do they achieve profit in that case?

  5. Sir now pl u can get @13% too

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