Gold loans or personal loans? What borrowers must know before choosing
Amid falling interest rates, it is prudent to compare gold loans and personal loans, highlighting key differences in interest rates, disbursal speed, eligibility, and risks to help borrowers make informed decisions.
As the nation enters a phase of monetary easing, aspirational loan borrowers along with credit card holders are weighing the merits of gold loans versus personal loans to meet their financial aspirations and goals.
Current interest rate landscape
The Reserve Bank of India (RBI) reduced the repo rate to 6% in April 2025, post a 25 basis point cut. There is an anticipation of further reductions in the coming months as inflation remains mostly contained and economic growth is slowly stabilising.
This rapidly evolving credit landscape highlights the importance of secured and unsecured loans. Not only this, it becomes equally crucial for aspiring borrowers to understand the difference between credit instruments such as gold loans, personal loans so that they are able to make well informed decisions.
Expert views
Elaborating on the same, Abhishek Dev, Co-founder and CEO, Epsilon Money said, “In a rate cut cycle, personal loans do tend to become cheaper. However, there are two important factors at play here, first is you might be getting the personal loan with negligible or zero collateral whereas in gold loans because you give out your gold holdings as collateral therefore interest rates will normally be cheaper. Secondly, Gold loans are also faster disbursed. While personal loans have stricter eligibility. With RBI meet slated next week & benign inflation, the street expects further rate cuts which could further benefit personal loan takers.”
Furthermore, Vijay Mani, Partner, Banking & Capital Markets Leader, Deloitte India, stated that, “In general, gold loan rates are less responsive to macro rate cuts than personal loans, but they are generally lower. Having said that, the right choice tends to vary by borrower, depending on availability of gold, and preferences regarding the amount needed, tenure, etc.”
Gold loans vs personal loans
Below is the fundamental different between gold loans and personal loans which all prudent investors must take into consideration while applying for a loan:
| Feature | Gold loans | Personal loans |
|---|---|---|
| Loan type | Secured loan backed by gold jewellery or ornaments. | Unsecured loan with no collateral required. |
| Interest rate | Lower interest rates, especially from public sector banks (starting from ~8% p.a.). | Higher interest rates (starting from ~10.85% to 11.25% p.a., can go up to 24% or more). |
| Disbursal speed | Faster disbursal due to secured nature and minimal documentation. | Processing time may be longer due to detailed credit assessment. |
| Lenders | Offered by banks and NBFCs like Muthoot Finance, Manappuram. | Offered by banks like HDFC, ICICI, Axis, and various NBFCs. |
| Eligibility | Eligibility based on gold quantity, purity, and loan tenure. | Eligibility based on income, credit score, and repayment history. |
| Risk in default | Risk of gold seizure in case of default. | Default affects credit score and may lead to legal action. |
| Best for | Best for those comfortable pledging gold for lower interest. | Ideal for those unwilling to pledge assets and with good credit. |
Note: The interest rates discussed above are illustrative in nature. For the updated terms and conditions refer to the official website of respective financial institutions and reach out to their customer support teams.
Loan choice considerations in 2025
- Gold loans generally offer borrowers lower interest rates in comparison with personal loans, especially from public sector banks. Personal loans also do not require or need any collateral, making them prudent for those unwilling to pledge assets.
- Gold loans are often processed rapidly and in a swift manner due to the security provided, these loans generally also need minimal paper work. Whereas, Personal loan eligibility is more dependent on income level, credit scores and credit history, and may be impacted by recent RBI tightening of risk weights on unsecured lending.
- Defaulting on a given gold loan can result in your lender seizing the pledged gold. Whereas personal loan defaults negatively impact your credit score and can lead to legal action.
Lending environment and outlook
Now with the headline inflation moderating and the RBI repo rate now at 6% NBFCs and banks are expected to gradually lower lending rates. Still even in this kind of a backdrop, it is crucial to keep in mind that unsecured credit products such as personal loans carry higher risk premiums and may witness slower rate reductions.
Furthermore, according to recent SBI Research further repo rate cuts are likely in FY26, potentially bringing the rate down to 5-5.25% by March 2026. This development could make borrowing even more lucrative for consumers.
Hence, keeping the above factors in mind, borrowers should be careful about understanding and assessing their financial objectives, risk taking potential and repayment capacity when opting for one among gold loans or personal loans. It is prudent to always compare the rates, terms and conditions from multiple lenders before submitting your loan application.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
Catch all the Instant Personal Loan, Business Loan, Business News, Money news, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.