Gold Loan or Personal loan - what is better?

 When you need money at a shorter time, then both gold loan and the personal loan comes handy as both the financial facilities do not have any end usage restriction on loan proceeds which makes them the preferred option. However, you have to choose between the two, whichever suits your financial needs. Both the financial products are preferred, but both of them have different interest rates, charges and fees. A personal loan is a secured loan, whereas a gold loan is an unsecured loan. Now, how to choose which type of a loan, here are pointers which will help you decide, which loan you should take according to your needs:-

What Is A Gold Loan?

A gold loan is a credit against gold. Under this loan, gold jewellery is taken as security by the lending bank/NBFC. The advance is given to the borrower against this gold as insurance. Also, the interest rate on the gold loan is lower than unsecured loans.

Gold Loan

What Is A Personal Loan?

A personal loan is also called an unsecured loan or signature loan, as no collateral is required to apply for a personal loan. A personal loan is sanctioned by looking at the borrower’s credit score, and in times of distress, this loan acts as your best friend.  

Personal Loan

Gold Loan Vs Personal Loan

These parameters will help you choose which loan you should prefer:-

Processing Time

Gold loan is a secured loan and the disbursal time is very quick in this type of a loan. Generally, the amount is credited to the borrower’s account within 24-48 hours. However, personal loan application sanction can take 3 to 7 days, as the borrower is required to submit their payslips, bank statement and other related documents. After submission of the documents, they are verified, which increases the disbursal time. Nowadays, many banks offer online loan approval facilities, which makes the personal loan process fast and convenient.

Loan Amount

Generally, personal loans range between Rs. 50,000- Rs. 25 Lakhs, whereas some lenders also give upto Rs 75 lakh. In contrast, the gold loan amount depends on the value of your gold asset, which you are pledging as collateral. However, RBI has barred lenders from sanctioning gold loans which exceed 90% of the gold value. If you have gold that fits your fund requirement, then you can consider the gold loan; otherwise, a personal loan is a right choice for high-value needs.

Interest Rate

The interest rate in both personal loan, as well as gold loan, varies. As Gold loans are secured loans, so the interest rate on the gold loan is lower and starts at 9.90%. However, the interest rate of a personal loan ranges from 10.45% to 26% per annum. If you have a bad credit score, then you should consider a gold loan as banks do not check credit score in case of gold loan and charge a higher rate of interest on a personal loan for low credit score.

Gold Loan Interest Rates

Personal Loan Interest Rates

Loan Tenure

The loan tenure for personal loans is from 1 year to 5 years, and in gold loans, the tenure starts from 1 day to three years. Always remember that longer tenure means a higher rate of interest. If you are confident of repaying the loan in a shorter tenor, then you should take a gold loan, if not then a personal loan is for you, especially if the amount is higher as well as tenure.

Eligibility

Any person who is above 18 years can apply for the gold loan and there is no minimum income required as the loan amount is assessed on the gold value. However, to apply for a personal loan, a salaried employee should have a minimum income of Rs 25,000. An applicant should have a total work experience of more than three years and a minimum of 650 credit score. Whereas, in gold loan credit score does not play a vital role. 

Repayment Option

Personal loans have an option of repayment in the form of EMIs (including interest as well as principal amount), however, in some gold loan schemes lenders allow the borrowers to pay the interest every month, and principal amount can be paid on maturity. In other cases, the borrower can repay their interest amount upfront during the loan disbursal with the principal component to be repaid at the end of the loan tenure. If a borrower has cash flow problems for a short term, then he can opt for the gold loan non-EMI option.

Processing Fee

Determining processing fee helps you decide which loan to take. Gold loans come with minimal processing charges as low as Rs. 10 and some lenders charge 0.10%-2% of the loan amount. In personal loans, the processing fees go up to 3%. Compare the processing fee carefully before making any decision.

Courtesy: My Loancare