Why More Indians Are Choosing Gold Loans Over Fixed Deposits

In Kerala, Anjali, a schoolteacher, faced unexpected medical expenses. With her savings tied up in a fixed deposit (FD) that offered a modest 6% annual interest, accessing funds quickly was challenging. 

She considered liquidating her FD but was confused by early withdrawal penalties and the loss of accrued interest. 

In contrast, her neighbour, Ravi, had invested in a gold loan, which allowed him to access funds swiftly by pledging his gold jewellery. This flexibility and quick access to funds has led many Indians, like Anjali, to reconsider their investment choices.

In 2024, a report revealed that 62% of Indians preferred mutual funds and Systematic Investment Plans (SIPs) over traditional FDs, highlighting a shift towards more investment avenues.

The performance of gold loan providers further supports this trend. Muthoot Finance, a leading gold loan company, reported a 33% increase in its third-quarter profit, reaching ₹13.63 billion, driven by strong demand for gold loans.

These developments suggest a growing preference among Indians for investments that offer higher returns and greater liquidity, such as gold loans, over traditional fixed deposits.

How Gold Loans Are Overtaking Fixed Deposits in 2025

In 2025, more Indians will turn to gold loans rather than traditional fixed deposits (FDs) to meet their financial needs.
 

This shift is primarily driven by two factors:

• Higher liquidity and
• Lower interest rates compared to unsecured loans.

Higher Liquidity Compared to Fixed Deposits

One main reason people choose gold loans over fixed deposits is the higher liquidity they offer. 

Liquidity means how quickly you can access your money when you need it. Fixed deposits are long-term investments that lock in your money for a set period. While they earn interest, you cannot access the funds before maturity without facing penalties. 

Read More – How to Invest in Gold

On the other hand, gold loans provide quick access to funds without such penalties.

For example, consider a person who needs urgent cash for medical treatment. If they have a fixed deposit, they might have to wait a few days to withdraw the money, and the bank could charge a penalty for early withdrawal. 

In contrast, a gold loan is typically approved within 30 minutes, and you get immediate access to the funds.

Let’s say you want a loan of ₹10 lakh. With a gold loan, this amount can be disbursed quickly, whereas, for an FD, you will need to go through a lengthy process of breaking the FD and paying penalties. This quick process makes gold loans the preferred choice for many.

Here’s a simple comparison between the liquidity of an FD and a gold loan:

Lower Interest Rates Compared to Unsecured Loans

Another significant advantage of gold loans is their lower interest rates than unsecured loans, such as personal loans. When you apply for a personal loan, the interest rate can range from 12% to 25%, depending on your credit score and the lender. 

However, gold loans offer a much lower interest rate, typically around 10% to 12%. This makes gold loans an attractive option for people who need funds but want to avoid the high interest burden of unsecured loans.

For instance, if you take a personal loan of ₹10 lakh, the interest rate could be 20%. Over 5 years, you would pay approximately ₹4 lakh as interest. 

But with a gold loan, at an interest rate of 10%, you would only pay ₹1 lakh as interest for the same amount and period.

Here’s a quick example showing the difference in interest rates:

As you can see, the difference in interest can be significant. For a ₹10 lakh loan, you could save ₹3 lakh by choosing a gold loan over a personal loan.

The Rise of Gold Loans

Let’s take the case of Sanjay, a small business owner from Mumbai. He has a turnover of ₹1.5 crore per year and needed an urgent loan of ₹15 lakh to expand his business. 

He considered both options: a fixed-deposit loan and a gold loan. His fixed-deposit loan offered him a loan against the FD, but the interest rate was 7%, and he would need to wait a week to get the money. 

In contrast, he opted for a gold loan, where he could pledge his gold jewellery and get ₹15 lakh within an hour. The interest rate for the gold loan was 11%, but he could manage this because of the quick access to funds. This flexibility and ease of access helped him make a critical decision for his business expansion.

Similarly, Anita, a schoolteacher from Bangalore, needed a personal loan to consolidate her debts. She had an income of ₹50,000 and needed ₹5 lakh to pay off her outstanding loans. 

She initially thought about a personal loan but was discouraged by the high interest rate of 22%. Instead, she decided to pledge her gold jewellery and took a gold loan for ₹5 lakh at an interest rate of 11%. This helped her reduce her financial burden and pay off her debts at a much lower cost.

Comparing Average Loan Amounts and Income Levels

Gold loans are also preferred by individuals with relatively higher incomes or business owners with significant turnover.

Here’s a look at some typical loan amounts and income levels that are leading people to choose gold loans:

Debt Consolidation Loan

₹15 lakh to ₹30 lakh

₹80,000

Overdraft Loan

₹10 lakh to ₹20 lakh

₹75,000

Business Loan (BL)