Gold loan or personal loan: Here’s how to know which one actually works better for you

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The interest rate is one of the main reasons people consider a gold loan. As it is a secured loan on your gold, lenders charge lower rates compared to personal loans. Since personal loans are unsecured, they have a slightly higher rate, especially for an average credit score. If your aim is to reduce the cost of borrowing, a gold loan would make more sense provided you already have idle gold either at home or in a locker.

Think about how fast you need the money

Gold loans are known for their quick approvals. Banks and NBFCs can disburse the amount within minutes because they don't need to run extensive checks. A personal loan, on the other hand, may take longer depending upon your income documents, credit score, and employment status. If the requirement is urgent, like a medical need or a last-minute payment, speed becomes a deciding factor, and a gold loan can easily win here.

Review your credit score situation

If your credit score is not strong enough or you have limited credit history, getting a personal loan at a reasonable rate becomes difficult. You either get rejected or end up with unfavourable terms. A gold loan is a lot more forgiving because the lender's risk is lower. Your gold acts as security, so lenders rely less on your past credit behaviour. If your credit score needs improvement, a gold loan can help you manage your financial needs without stressing over approval.

Check your repayment capacity and flexibility

Gold loans are available with flexible repayment options like interest-only EMIs, bullet repayments, or paying the full amount at the end of the tenure. This can be very helpful if your cash flow is irregular or seasonal-for example, if you are self-employed or run a small business. Personal loans require fixed EMIs from day one, which might not suit everyone. If you want more control over how you repay, a gold loan usually gives you more breathing room.

Consider the loan tenure you need

Gold loans are usually given for a tenure ranging from a few months to a couple of years. A personal loan can stretch up to five years or more. If your need is short-term and you don't want to stay in debt for long, a gold loan fits better. But in cases of long-term requirements, a personal loan may still be more practical because of its extended repayment period.

Assess the emotional value of your gold

Finally, bear in mind that for many people, gold is more than just an asset; it carries sentimental value. A gold loan involves a temporary separation from it, and inability to repay may effectively result in its loss. When the emotional attachment to it is strong, a personal loan might seem less risky. But if your gold is more of an investment, and you are fairly confident about repaying on schedule, using it to gain access to cheaper credit can be smart.