Gold Loan vs Personal Loan – What’s Cheaper for You?

In India, when people need quick cash for emergencies, business expansion, education, or even personal reasons, two of the most common loan options are gold loans and personal loans. Both can give you access to funds without having to wait for months, but the way they work, their costs, and their risks are very different.

Gold has always been an integral part of Indian households — not just for its beauty and cultural value but also as a financial backup. On the other hand, personal loans have become very popular in recent years, thanks to instant approvals and app-based lending.

But here’s the real question: Which is cheaper for you — a gold loan or a personal loan?

The answer depends on several factors:

• Interest rates
• Loan tenure
• Eligibility and credit score
• Risk of losing collateral
• Urgency of funds

In this detailed blog, we will break down both options, compare them side-by-side, and help you decide which one suits your needs. By the end, you’ll have a clear idea of:

• How both loans work in India
• Their pros and cons
• How much you might end up paying in total
• When to choose one over the other

2. Understanding a Gold Loan

A gold loan is a secured loan where you pledge your gold ornaments, coins, or bars as collateral to a bank or NBFC. The lender evaluates your gold’s purity and weight, decides its value, and then offers you a loan amount — usually up to 75% of the gold’s market value as per RBI guidelines.

Key features of a gold loan:

• Eligibility: Almost anyone with gold can apply.
• Processing time: Very quick — sometimes within 30 minutes.
• Interest rates: Usually 7% to 15% per annum depending on the lender.
• Tenure: Ranges from a few months to 3 years.
• Loan-to-Value (LTV) ratio: Maximum 75% of the gold value.
• Repayment: Can be bullet repayment (pay interest periodically, principal at end) or EMI-based.

Example: If you pledge 50 grams of gold, and today’s gold price is ₹6,000 per gram, total value = ₹3,00,000. At 75% LTV, you can get up to ₹2,25,000 as a loan.

Advantages of a gold loan:

• Minimal documentation.
• Doesn’t depend much on your credit score.
• Cheaper interest rates compared to most personal loans.
• Flexible repayment options.

Drawbacks:

• You risk losing your gold if you default.
• Lenders may auction your gold after a few missed payments.
• Loan amount depends on gold value, so not suitable for very large funding needs if you have limited gold.

3. Understanding a Personal Loan

A personal loan is an unsecured loan — you don’t need to pledge any asset. Lenders approve it based on your credit score, income, and repayment history.

Key features of a personal loan:

• Eligibility: Good credit score (usually 700+), stable income.
• Processing time: Instant to 2 days for existing customers, longer for new ones.
• Interest rates: Generally 10% to 24% per annum in India.
• Tenure: 1 to 5 years.
• Loan amount: Can range from ₹50,000 to ₹50 lakhs depending on your eligibility.
• Repayment: Monthly EMIs.

Example: If you take a ₹2,00,000 personal loan for 3 years at 14% p.a., your EMI will be around ₹6,850, and your total repayment will be approximately ₹2,46,600 — meaning you pay ₹46,600 as interest.

Advantages of a personal loan:

• No collateral required.
• Can be used for any purpose.
• Higher loan amounts possible.
• Suitable for people with no gold assets.

Drawbacks:

• Higher interest rates than gold loans.
• Requires good credit score and strong income proof.
• Longer approval process if you are not an existing bank customer.

4. Gold Loan vs Personal Loan: Quick Comparison Table

5. Which is Cheaper? Detailed Cost Analysis

To understand which option is cheaper, let’s compare a real-life example.

Case Study 1: ₹2,00,000 Loan for 2 Years

Gold Loan:

• Interest rate: 10% p.a.
• EMI: ₹9,229
• Total repayment: ₹2,21,496
• Total interest: ₹21,496

Personal Loan:

• Interest rate: 14% p.a.
• EMI: ₹9,607
• Total repayment: ₹2,30,568
• Total interest: ₹30,568

Conclusion: Gold loan saves you ₹9,072 in interest.

Case Study 2: ₹2,00,000 Loan for 3 Years

Gold Loan:

• Interest rate: 11% p.a.
• EMI: ₹6,540
• Total repayment: ₹2,35,440
• Total interest: ₹35,440

Personal Loan:

• Interest rate: 15% p.a.
• EMI: ₹6,930
• Total repayment: ₹2,49,480
• Total interest: ₹49,480

Conclusion: Gold loan is still cheaper, but the difference increases with higher interest rates.

6. When Should You Choose a Gold Loan?

Gold loans are ideal if:

• You need funds urgently (within hours).
• You have gold lying idle at home.
• You have a low credit score.
• You want a short-term loan with lower interest.

Avoid gold loans if:

• You can’t risk losing your gold.
• You want a very long tenure (over 3 years).

7. When Should You Choose a Personal Loan?

Personal loans are better if:

• You have a good credit score (700+).
• You don’t have gold to pledge.
• You need a higher loan amount.
• You want longer repayment tenure.

Avoid personal loans if:

• Your credit score is poor.
• You want the lowest possible interest rate.

8. Final Verdict

• Cheaper Option: Gold loans generally have lower interest rates.
• Safer Option: Personal loans don’t risk your gold but cost more in interest.
• Your choice depends on your assets, urgency, loan amount, and risk appetite.

If you’re still confused between a gold loan and a personal loan, use the GoodScore Loan Comparison Tool to see exact EMI and total repayment for both options. This way, you’ll know which is truly cheaper for you before applying.

9. FAQs

Q1. Is gold loan interest rate fixed or floating? Usually fixed, but some lenders may offer floating rates.

Q2. Will my gold be safe with the lender? Yes, reputed banks/NBFCs keep it in secure vaults with insurance.

Q3. Does gold loan affect my CIBIL score? Yes, if you default, it can hurt your score.

Q4. Can I repay a gold loan early? Yes, most lenders allow foreclosure, but some may charge a small fee.

Q5. Which is better in emergencies? Gold loans are faster to process in emergencies.