When you need quick funds, a gold loan and a personal loan often compete for the same use case — but they work very differently. Here is how their interest rates, loan-to-value limits, eligibility and risks compare, so you can pick the cheaper and more suitable option.
A gold loan is a secured loan where you pledge gold jewellery or coins as collateral with a bank or NBFC. A personal loan is an unsecured loan sanctioned purely on the basis of your income, credit score and repayment history — no collateral required.
Because the gold loan lender holds physical collateral that can be auctioned in case of default, gold loans are priced lower and approved faster than personal loans for most borrowers.
| Parameter | Gold Loan | Personal Loan |
|---|---|---|
| Nature | Secured (against gold collateral) | Unsecured |
| Typical interest rate | ~9% – 18% p.a. | ~10.5% – 24% p.a. |
| Loan-to-Value (LTV) | Up to 75% of gold's value (RBI cap) | Not applicable — based on income |
| Approval time | Same day / within a few hours | 1–3 days typically, sometimes instant for pre-approved offers |
| Credit score requirement | Minimal — collateral matters more | Usually 700+ for best rates |
| Tenure | Usually up to 12–36 months | Usually 12–60 months |
| Risk on default | Lender can auction your pledged gold | Credit score damage, recovery proceedings, no collateral loss |
| Repayment options | Bullet repayment, EMI, or interest-only with principal at maturity | Standard monthly EMI |
The Reserve Bank of India caps the LTV ratio for gold loans — lenders can finance up to a regulated percentage of the gold's market value (assessed on a purity and weight basis, typically capped at 22-karat value even if your jewellery is higher purity). For example, gold worth ₹1,00,000 at the prevailing cap might fetch a loan of roughly ₹75,000, depending on the lender's policy and prevailing RBI guidelines at the time of borrowing.
| Cost head | Gold Loan | Personal Loan |
|---|---|---|
| Processing fee | Often 0.5%–1% of loan amount | Typically 1%–3% of loan amount |
| Valuation/appraisal charges | May apply for gold assessment | Not applicable |
| Prepayment/foreclosure charges | Often nil or low | Can range from 2%–5% of outstanding amount |
| Storage/insurance of collateral | Usually borne by lender, but verify | Not applicable |
Always compare the Annual Percentage Rate (APR) — which bundles interest with fees — rather than just the headline interest rate, since a "lower rate" gold loan with high processing and valuation charges can sometimes cost more than expected.