New Delhi. Nowadays people resort to different types of loans to meet their financial needs. Personal loans and gold loans are the two main options, between which there are many differences. It is important to understand the difference between these two types of loans so that you can choose the right loan according to your needs.

A personal loan is available without any asset security, while a gold loan is taken against gold or other precious metals. Both have different benefits and limitations, which can be analyzed to make the right decision.

1. Interest rate

Personal Loan: The interest rate on a personal loan is generally higher than a gold loan because it is an unsecured loan. In this, the bank does not get any physical security (collateral) for the repayment of the loan. Therefore, the risk of a personal loan is higher, and hence the interest rate is also higher.

Gold Loan: The interest rate on the gold loan is low because it is considered a secured loan. In this, the gold pledged with the bank is used as a security, which reduces the risk to the bank and the interest rate is also low.

2. Loan amount

Personal Loan: The amount of a personal loan depends on your credit score and income. If you have a good credit score and a stable income, you can get a personal loan of a large amount.

Gold Loan: In a gold loan, you get the loan amount based on the value of the gold you pledge. If you have more gold, you can get a higher loan amount.

3. Loan tenure

Personal Loan: The tenure of a personal loan can be long, i.e. from 1 to 5 years. The tenure of this loan depends on the loan amount, repayment terms, and bank rules.

Gold Loan: The tenure of a gold loan is usually short, like 3 to 12 months. You need to repay it as soon as possible as gold is pledged as collateral.

4. Approval Process

Personal Loan: Personal loan requires bank paperwork and a credit check, which is time-consuming. For this, you need a credit score, income certificate, and other documents.

Gold Loan: The approval process of a gold loan is faster because gold is pledged as collateral. You do not have to do any lengthy paperwork for this and you get this loan very quickly.

5. Purpose of the loan

Personal Loan: Personal loans can be used for personal needs, such as medical emergencies, weddings, travel, or education.

Gold Loan: The main purpose of a gold loan is when you need urgent money and you have the physical asset of gold.

6. Returns

Personal Loan: There is no investment or returns involved with a personal loan. It is simply a loan amount that you have to repay.

Gold Loan: There is no possibility of returns in Gold Loan as it is also a type of loan in which you mortgage your property (gold).

If you need money urgently and have gold, a gold loan can be a good option. It comes with a faster process and a lower interest rate. On the other hand, if you do not have any assets and need a higher loan amount, a personal loan may be better for you, but it comes with a higher interest rate.