Gold Loan vs Personal Loan: Which is better?

Loans, sometimes, become necessary to fulfill your financial needs. That is why there are different types of loans available in the market. However, when it comes to loans, there are two basic types. One is the secured loan which is offered against the security of an asset that you own. The other is the unsecured loan, which does not need any asset as collateral.

In the context of secured and unsecured loans, gold loans and personal loans are often compared to one another. Gold loans are secured loans that give you funds against the mortgage of gold assets that you own. Personal loans, on the other hand, are unsecured loans that do not require any collateral. Also, gold loan rates are lower in comparison to the interest rate on Personal loan. Despite the difference, both these loans give you funds for meeting various financial requirements.

Gold Loan vs Personal Loan

But which among the two is better? Let’s analyze –

Gold loan v/s personal loan

Here is a comparative analysis of both these types of loans on different parameters –

Basis of comparison Gold loan Personal loan
Type of loan Secured loan. The loan is secured against the gold assets that you pledge Unsecured loan. The loan does not require any assets to be pledged
Loan amount Depends on the weight and purity of the gold assets pledged Depends on your income level and other existing liabilities that you have
Interest rate Lower compared to personal loans as the loan is secured. Interest starts from 10.50% Interest rates are high because the loan is unsecured. Interest rate starts from 10.99%
Repayment period Up to 36 months Up to 60 months
Repayment mode Multiple repayment options are available like bullet payments, EMIs, interest-only EMIs, etc Usually, the loan is repaid through EMIs only
Credit score required No such requirement of credit score since the loan is secured against gold assets Your credit score should be 650 and above for a personal loan

Advantages of gold loans over personal loans

Here are some reasons why gold loans score over personal loans –

Gold loans promise lower interest rates making them more affordable than personal loans even if you have a low credit score, you can avail a gold loan if you have gold assets to pledge loan has a short repayment tenure making it suitable for short-term financial needsThe different modes of repayment available under the loan helps you choose the most suitable way to repay the loan.

Advantages of personal loans over gold loans

Here are some points which show why personal loans are better than gold loans –

In a gold loan, the loan amount is limited to the extent of the gold assets that you have. The loan, therefore, might not provide the required finance if you have limited assets to your name. Through a personal loan, however, you can avail a higher quantum of finance. The loan allows longer repayment tenures making it affordable for you to repay the loan through smaller EMIs

The verdict

Both loans have their advantages and disadvantages. You should, therefore, check your requirements and then decide. If you have sufficient gold assets, you can avail a gold loan, and if you need higher funds, personal loans are better. Similarly, gold loans would be suitable if you have a lower credit score. So, see which loan is ideal for your needs and then make a choice.