When you need quick cash, pledging gold is often the fastest solution. But how you borrow against your gold — through a gold loan or a gold overdraft — can make a big difference in what you finally pay back.
CA Abhishek Walia, co-founder of Zactor Money, recently broke down the difference with a simple example. “Two people pledged the same amount of gold. One paid ₹12,000 in interest. The other paid almost double. The difference? How they borrowed,” he wrote on LinkedIn.
Both borrowers needed ₹3 lakh for short-term expenses.
The first opted for a gold loan — a fixed lump sum with 8–9% annual interest, structured EMIs, and a clear repayment schedule.
The second chose a gold overdraft, which works like a credit line — you can withdraw funds anytime and pay interest only on what you use.
At first, the overdraft seemed smarter — until gold prices fell.
When gold’s market value dropped, the bank revalued the pledged gold and asked the overdraft borrower to repay part of the outstanding amount to maintain the 75% loan-to-value (LTV) ratio.
“He hadn’t planned for that,” said Walia. The borrower had only been paying interest, not the principal. “What started as flexibility turned into stress.”
This shows that market fluctuations directly impact overdraft users more, especially those without a structured repayment plan.
| Feature | Gold Loan | Gold Overdraft |
|---|---|---|
| Loan Type | Lump-sum loan | Revolving credit line |
| Interest | On entire amount | Only on amount used |
| Repayment | Fixed EMIs | Flexible, depends on usage |
| Best For | One-time borrowing | Frequent short-term needs |
| Risk | Predictable costs | Exposure to gold price volatility |
Walia summed it up simply:
“A Gold Loan works best if you want structure and clarity. A Gold Overdraft offers flexibility, but it can hurt you if you’re careless.”
Choose a Gold Loan if you need funds once — for an emergency, education, or a short-term goal. You’ll know exactly how much and when to repay.
Choose a Gold Overdraft if you often need liquidity and can manage repayments smartly. It offers freedom, but you must monitor both usage and market prices.
Ultimately, both help you unlock the value of your gold, but one keeps you in control, while the other tests your control.
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