For many Indian households, gold lies untouched in bank lockers, brought out only during weddings or festivals. At the same time, these families often rely on personal loans or expensive credit card debt to meet short-term financial needs. The contradiction is striking: one of the cheapest borrowing options is already owned, yet rarely used. 

As borrowing costs for unsecured credit remain elevated, gold loans are drawing renewed attention. Financial experts, however, say the choice between gold loans and personal loans depends less on interest rates and more on income stability, repayment capacity, and the purpose of borrowing. 

Are gold loans back in the spotlight 

Gold loans have traditionally been seen as old-fashioned or cumbersome, involving valuation and verification processes. But in the current environment of high personal loan and credit card rates, they are emerging as a cost-efficient option for specific needs. 

Because gold loans are fully secured, lenders face lower risk, which translates into lower interest rates for borrowers. Banks currently offer gold loans at 7–8%, and in some cases, rates can be comparable to or even lower than home loan rates. 

In contrast, personal loans typically start at around 14% and can rise sharply depending on the borrower’s credit profile. Credit card debt, if carried forward, is even more expensive over time. 

Personal loans still make sense for many 

Despite the cost advantage of gold loans, personal loans remain the preferred choice for borrowers with steady incomes and predictable cash flows. 

“When choosing between a gold loan and a personal loan, the starting point should always be income stability and repayment ability,” said Abhishek Gandhi, Co-Founder, FatakPay. “If you earn steadily and can plan repayments, a personal loan is often more effective. It’s fast, flexible, and doesn’t put a household asset at risk.” 

Gandhi added that gold loans are best suited for immediate, short-term liquidity needs. Given gold’s emotional and cultural significance in India, pledging it for planned or ongoing expenses can create unnecessary stress if repayment timelines stretch. 

The case for gold loans 

“When you take a personal loan, interest rates are significantly higher because the loan is unsecured,” said Mahendra Luniya, Chairman, Vighnaharta Gold Ltd. “Gold loans are secured, which is why their rates are much lower.” 

Luniya pointed out that loans against Sovereign Gold Bonds offer an added advantage. Borrowers continue to earn the government-backed 2.5% annual interest on SGBs even after taking a loan against them, effectively reducing the net borrowing cost to nearly 5.5%. 

Where gold loans work best 

Experts agree that gold loans are most effective for short- to medium-term needs such as medical emergencies, temporary income disruptions, business cash-flow gaps, or consolidating high-interest credit card dues. Because the loan is backed by gold, lenders are often more flexible on credit scores compared to unsecured loans.  

Risks borrowers often underestimate 

Lower interest rates do not mean lower risk. One common pitfall is complacency—borrowers may delay repayment because the loan feels cheaper, allowing interest to accumulate over time. There is also the emotional risk of pledging a family asset. Defaulting on a gold loan can have consequences that go beyond financial loss. Also, lenders may invoke loan-to-value rules or seek additional margin if gold prices fall sharply, a rare but possible scenario. 

Using gold loans for long-term lifestyle spending or consumption without a clear repayment plan is widely seen as risky. They are also unsuitable for borrowers with unstable incomes, where the lower interest rate does not compensate for the risk of losing the pledged asset. 

What to check before pledging gold 

Interest rates are only one part of the equation. Tenure flexibility, repayment options, storage charges, and how interest is calculated can vary widely across lenders. Some loans require regular interest payments while others allow interest to accumulate until closure, and most importantly, borrowers should have a clear exit plan.