Generating personal loan might be a great option but there is very few financing option form the bank sector which provides a flexible personal loan at the time of emergency.

The other alternative which is available in the form of a secured loan is a gold loan because of less documentation and fast disbursal.

However, both the loans have their own advantages and disadvantages, which may prove beneficial in different ways.

What is Gold Loan?

  • Gold loans are the secured loan that is given by any bank or any financial institution based on the availability of any gold at the time of raising the gold loan.
  • It is given based on the availability of the quantity of gold and its value at that time.
  • The gold loan can be used for any purpose like business, education, marriage, etc.
  • This kind of loan can be given to the owner of gold no matter the profession and requirement of the owner.

Benefits of gold loan

No credit history required

  • While raising a gold loan no bank or financial institution cares about the credit history or credit score of the borrower.
  • In other words, there is no need to show your debt obligation or credit history or your CBIL score.
  • They are just concerned about the quantity and value of gold.

Low-Interest rate

  • The interest rate charged by most of the banks or financial institutions at the time of granting a gold loan is generally lower than the personal loan.
  • This is one of the key reasons why people prefer a gold loan as it means that you need less money out of your pocket to repay the loan and its interest rate.

Easy approval process

  • The approval process for a gold loan is very easy, swift, and fast
  • As banks and financial institution does not require many documents and paperwork at the time of granting a loan.
  • The process of gold loan is free from complexity and the disbursement can be processed in a few hours.

No prepayment penalties

Generally, at the time of granting gold, there are no pre-payment penalties which are usually associated at the time of granting the personal loan.

Flexible repayment

Gold loan offers many options for repayment which are generally not provided at the time of raising other loans.

These are the following most common repayment options

  • One can choose to pay back the loan at the time of making payment of regular EMIs.
  • Even borrowers can choose to service only the interest during the loan tenure and pay the rest outstanding amount at the end of the tenure.
  • The borrower can pay the interest and loan amount at the end of the tenure without making any prior payments.

Additional Benefits

Some banks and financial institutions often provide gold loan borrower many benefits such as locker facilities, discounts on various services provided by the lenders.

Demerits of Gold Loan

High margins

Almost all banks and financial institutions provide gold loans up to 75% of the value of the gold. Whereas, the rest 25% value contributes towards the bank’s margin which cannot be monetized.

Short tenure

The maximum time period of the gold loan provided by the banks and the financial institution is up to 3 years which directly increases the EMI payment. It can become a burden on the borrower.

Loss of Assets

A gold loan is basically a secured loan, therefore, the asset provided by the borrower is at risk of liquidation.

What is a Personal Loan?

A personal loan is basically an unsecured loan which can either be raised by the bank or by any other financial institution. There is no need for any collateral or security as the personal loan can be raised by any person without any security like assets or jewelry. A personal loan can extend up to 7 years.

Benefits of Personal Loan

No collateral

  • This is one of the most important and most attractive features of the personal loan as a personal loan can be granted by any bank and financial institution without taking any collateral or security like assets, jewelry, property, etc.
  • Therefore, any individual who doesn’t have any security can raise such type of loan, that’s why it is the preferable loan.

Minimal Requirement

A personal loan does not need much paper-work and documentation etc. you just need to provide your basic information like:

  • Employment information
  • Income information to raise the personal loan, and
  • Proof of income.


There is no particular restriction on the usage of the personal loan as you can raise the personal loan to fulfill the cash requirement for any of the purpose given below

  • Education
  • Purchasing the car or house
  • Marriage
  • Home renovation, or
  • Making repayment of any other debt.

Demerits of Personal Loan

High-Interest rate

The personal loan interest rate differs from bank to bank and financial institution, however, the rates are generally higher.

Credit history and eligibility criteria

The eligibility criteria for the personal loan also have complexities and limitations. Banks and financial institutions before providing approval to the personal loan conduct throughout the inquiry. Inquiry about the overall credit history of the borrowers.

Pre-payment/foreclosure penalties

Banks and financial institutions often do not allow prepayments on personal loans until a specific time period of 1 year. Lenders further charge high prepayment fees as a penalty. Penalty if the individual is willing and able to pay off the loan before the completion of the loan tenure.