Personal Loan

Gold Loan vs. Personal Loan: Which Option is Better?


There are times when individuals may need a surplus amount of money urgently. Loans have made it possible for many people to buy things they couldn’t afford. Even if a person does not have collateral, they can still receive loans. Although some may say that taking loans is risky, the likelihood of defaults decreases when one makes an informed choice.

Today, there are many different types of loans available. Gold loans and personal loans have become increasingly popular. However, how does one decide which loan is the best?

Here is a guide to help you understand all about gold loans and personal loans.

What is a Gold Loan?

It is a type of secured loan where borrowers are required to submit gold as collateral. The loan amount depends on a certain percentage of gold and is based on the market value of the collateral.

What is the tenure of a gold loan?

Gold loans have a short borrowing time period. It may range from 1 month to 5 years. However, the duration can be fixed according to one’s lender.

What is the rate of interest levied on gold loans?

Interest rates on gold loans range from 9% to 17%. But again, it all depends on the flexibility of the lender. Since many lenders provide gold loans, borrowers are advised to compare interest rates, tenure, processing fees, late payment charges, etc. before taking a gold loan.

What are the documents required for a gold loan?

You will need to submit passport-size coloured photographs, Identity proof, and address proof.

What are the things to keep in mind before taking a gold loan?

Gold loans are secured loans. The amount of money one receives depends on the value of the gold kept as collateral. One must be careful and only borrow an amount that can be paid comfortably.

What happens when someone is unable to pay back the due amount?

In such cases, the action taken against defaulters depends on and is different for each lender. Some may charge a higher rate of interest on the remaining amount. Others would issue a notice. Borrowers will have to pay the loan amount by the final date mentioned on the notice. If they fail to do so, the lender has the right to recover their money by auctioning off the gold.

Some of the basic questions regarding gold loans were answered above. Here is a list of reasons why one should opt for a gold loan:

  1. It is quickly disbursed. there is no lengthy process and once the documents are approved, the loan is processed.
  2. Borrowers can take gold loans and use them for any purpose.
  3. Gold ornaments are the only security you will have to make.
  4. The interest rates are relatively lower than personal loans because gold is kept as collateral.

What is a personal loan?

Personal loans are unsecured loans and can be used to repay debt, buy a house, plan a wedding, take a vacation, etc. Hence, it is also known as the ‘All Purpose Loan’. These loans do not require any collateral and are disbursed on the capacity of the borrower.

Who is eligible for a personal loan?

Since the borrower is not required to give any collateral, lenders look for the following before handing out personal loans:

  1. CIBIL Score and report
  2. Employment status and earning capacity
  3. Annual income
  4. Frequency of EMI payments and any defaults

What is the rate of interest applicable on personal loans?

The rate of interest varies from lender to lender and is determined by comparing the loan amount to your income, the tenure chosen by the borrower, and finally, the credit profile of the borrower.

What is the period for which a personal loan is issued?

Personal loans can be issued for anywhere from 12 months to 60 months. It depends on the loan amount, rate of interest, and the borrower’s ability to pay back the amount.

What are the documents required for a personal loan?

If you’re a self-employed individual, you need to present proof of identity, residence, income, office, and your bank statement for the last six months. Those who are salaried individuals are also required to present the same documents, in addition to their last three months’ salary slip.

What are the things to keep in mind before taking a personal loan?

Repayment of a personal loan is a long and exhausting process. One must evaluate their repayment capacity with complete honesty before borrowing large amounts. In cases where borrowers default on repayment, their CIBIL score and credit history are affected. People must study all options and make the best choice for themselves.

Why should you take a personal loan?

One should choose a personal loan for the following reasons:

  1. It allows you to pay off smaller debts such as credit card bills.
  2. The disbursal is quick.
  3. You do not have to give anything as collateral.
  4. A personal loan is also a line of credit. If you do not default on repayments, it can improve your credit score even more.

Although it takes 2-7 business days to process personal loans, it is now possible to get instant personal loans. These loans are issued instantly upon document verification. The entire process is smooth and can also happen online. However, the loan amount is relatively lesser than compared to personal loans.


If you are looking to secure a loan with collateral and improve your credit score, you should opt for personal loans. However, if you wish to liquidate idle assets such as gold and generate money against them, opt for gold loans. While most criteria are the same for both loans, sometimes, the rate of interest might be lower for gold loans. To say that one is better than the other depends entirely on the borrower’s needs. To learn more about personal loans and instant personal loans, visit the Piramal finance website.