Understanding the difference: Gold Loan vs Personal Loan for the right choice

With increased credit infusion, many borrowing options are now available in the market. Secured loans have constantly been a preferred choice due to their low interest rates and quick processing time. For low to moderate-value loans, Gold Loans have remained popular as a secured loan option.

However, secured loans may not be accessible to everyone. In such situations, Personal Loans come to the rescue. Meanwhile, if you have access to both, you need to make a choice that will suit your needs the most. Let’s find out the benefits of both Gold Loans and Personal Loans.

Gold Loans

A Gold Loan is a secured loan that you can avail of by pledging gold with a bank or financial institution. You can pledge gold in the form of jewellery, coins or even bullion. Financial institutions usually provide 75-80% of the gold value as a loan. The gold is valued at the time when the borrower applies for the loan.

Advantages of Gold Loans

• Gold Loans come with unrestricted end-use. You can use the funds from Gold Loans for any purpose.
• Being a secured loan, it comes with affordable interest rates.
• Gold Loan processing, approval and disbursal is quick.
• You can avail of a Gold Loan even if you have an average credit history.
• Gold Loan EMIs are flexible. You can either pay in the form of EMI or pay interest with bullet repayment in the future.



Also Read: Can a gold loan improve your CIBIL score?

Disadvantages of Gold Loans

• Not all the borrowers have gold to pledge with banks or financial institutions thereby limiting its access to certain borrowers.
• If you are unable to repay your Gold Loans, then the lender has the right to forfeit your gold and sell it to recover its dues.
• The Loan-to-Value (LTV) of the Gold Loans varies across different lenders. Therefore, you need to search for the right lender to get a Gold Loan at the most attractive interest rates.

Personal Loans

A Personal Loan is an unsecured loan since it does not require a security deposit. Unlike Gold Loans, you do not have to provide any security for availing of Personal Loans. Banks and financial institutions typically prefer extending personal loans to salaried individuals as they have a more predictable and reliable income. Being an unsecured loan, the interest rates on Personal Loans are high.

Advantages of Personal Loans

• Personal Loans are unsecured loans and therefore, you do not have to provide any collateral security to the lender.
• Personal Loans also come with unrestricted end-use. Therefore, you can use the funds for any purpose you need.
• Interest rates of Personal Loans are lower than other unsecured financing arrangements like Credit Cards.
• Personal Loans can be used to consolidate your other debts to convert all your EMIs into a single EMI. This allows you to close your high-interest loans, saving you significant interest costs.

Disadvantages of Personal Loans

• Personal Loans attract higher interest rates as compared to secured loan options.
• You need to have a good credit score and provide income proof to get Personal Loans at favourable terms.
• While selecting tenure is flexible, Personal Loans do not come with bullet repayment options like Gold Loans.
• If you have missed repayment of your previous loans, then getting Personal Loans can be difficult.

Also Read: How can you get a Personal Loan online with 6 easy steps?

Choosing between the two loans

You can go with either option depending on your profile, needs, purpose and fund requirements. Further, the interest rates of a gold loan and a personal loan become important determinants. You can use a gold loan and personal loan calculator to make informed decisions.

Axis Bank has remained the borrower’s choice whether it's about Gold Loans or Personal Loans. With attractive interest rates, flexible terms and quick processing, you can avail of loans seamlessly.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.