Borrowing Amidst COVID Times: Gold Loan or Personal Loan?

Borrowing Amidst COVID Times: Gold Loan or Personal Loan?

With yellow metal rallying at highest ever rate Gold Loan has become one of the buzz words among masses. In India, we have always saved conventionally in fixed asset classes like Gold for emergency. So is this the right time to use the stacked up Gold coils/jewellery for easing up liquidity crisis? With pandemic challenging the sustenance of businesses, should one opt for Gold Loan to raise some easy cash or stick with a Personal Loan offer in the inbox?

Gold Loan or Personal Loan?

Gold Loans and Personal Loans do not restrict the end use of the funds. These two products come as one of the preferred choices for all purpose loans. Both Gold Loan and Personal Loan are meant for short term cash lapses. However the perfect suitability of the product considerably depends on your exact needs and financial health. Being a secured loan, Gold Loan is offered against the fixed value of asset pledged. However you do not need any security to avail of the Personal Loan.

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Let’s draw a quick comparison between these two bank products.

  Gold Loan Personal Loan

Nature of Loan


Secured Loan

Unsecured Loan

Rate of Interest


10% -16%

11% to 20 %



1-2 years

1 to 5 years

Quantum of Loan


Rs 10000 to Rs 15 Lakh *Varies as per the value of Gold pledged

Rs 50000 to Rs 40 Lakhs

Processing Fee


1 %


Credit Score


Credit history is not required

700 or above

Foreclosure Charge



Up to 4 %

1. Loan Quantum

The Loan Quantum varies across the lenders. Generally you can avail of Gold Loan for amount ranging from Rs. 10,000 to Rs. 15 lakhs, and you can borrow Personal Loans for anywhere between Rs. 50,000 to Rs. 40 lakhs. While for Personal Loan Eligibility, loan quantum is based on your credit history and net income. The amount of Gold Loan will be proportional to the value of the Gold being pledged. With high Gold Prices, currently your old Gold Coins or Jewellery can be used to avail a good value of loan.

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2. Tenure

The Gold Loans are comparatively loans with shorter time duration. Thus these loans are offered for 6 to 12 months. Generally the borrower may ask for extension of loan tenure after exhausting the tenure of Gold loan. On the other hand, Personal Loans are readily available for 1 to 5 years. Thus, in case you are looking out for a temporary liquidity relief due to pandemic, a Gold Loan is a good choice. For long duration and high-ticket value, opt for a Personal Loan.

3. Rate of Interest

Both Gold Loans and Personal Loans will be generally offered on a fixed interest basis. Being secured loans, Gold Loans are more affordable than Personal Loans. However the final rate depends on your credit health. As an industry norm, the fixed lending rate for Gold Loan is anywhere between 10 % to 16% p.a. while for Personal Loan Interest Rate range can vary from 12% to 20%.

4. Other Charges

Again the charges such as processing fee and foreclosure fee will vary due to the nature of secured and unsecured loan. The Gold Loans have low processing fee and low foreclosure charge. The processing fee for Gold Loan will be up to 1% of the loan amount while for Personal Loan it can be slightly up, ranging between 1% to 2 % of the loan amount. The prepayment of Personal Loan will attract a penalty of up to 4 % while for Gold Loan, it will be around 1% only.

5. Credit Score

To be eligible for Personal Loan, you should have a fixed monthly income and a good Credit Score to back your loan application. However for Gold Loans you do not need either of the two. The loan is pledged again the asset value.

Furthermore, other factors such as applicant’s age, work experience, and employment type will also affect the lender’s decision for approving a Personal Loan. As for the Gold loan, the borrower should be 18 years or above and a legal owner of the gold that is to be pledged.

6. Repayment

The repayment structure of Personal Loans is based on Equated Monthly Instalments constituting both interest and principal components. While the Gold loans offer different repayment structures. In most cases, the lender will offer you a choice of servicing just the interest component each month. So it leads to very small EMI. However at the end of the tenure the loan principal will be required to be paid out upfront.

Making decision between Personal Loan & Gold Loan amidst pandemic

It is thus recommended to Opt for Gold Loans for short term cash disruptions only. Personal Loans on the other hand are most suitable for high-ticket loan requirements for longer duration. Besides, the relaxation of Credit Score and other eligibility factors make Gold Loan a go-to option for anyone who has low score or lacks loan Personal Loan eligibility criteria. Amidst COVID times, if you need bank loan to ease the liquidity for a short duration of 6 months to 12 months at a low cost, Gold Loans certainly make for a suitable option. Also those who have opted for moratorium may not be eligible to apply for Personal Loan. In all, you must consider all these factors and take the final decision as per your current financial health.


Also Read: How to Get Cash during Lockdown without Stepping Out?


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Category: Personal Loan