Both gold loans and personal loans are viable options when there is an immediate financial need. They are easy to procure and have no restrictions on the use of the funds. But, you cannot choose both in times of need. You have to choose the one which is more viable for your situation. Although they are both the preferred choice of individuals, they have different rates of interest and the related charges are also different. Moreover, a gold loan is a secured kind of a loan, whereas a personal loan is not.
Gold loan Vs Personal loan – Choosing the Right One
A gold loan means borrowing funds against gold. As a borrower, you have to pledge your gold or pieces of jewellery to the lender. The interest rate is comparatively lower. Besides, you do not need to have a credit score to apply for a gold loan.
A personal loan is an open-ended and unsecured loan. A personal loan is based on the applicant’s Cibil score. The interest rate on a personal loan is higher when compared to a gold loan.
Loan disbursal time
As mentioned earlier, a gold loan is a secured kind of loan and hence the processing of a gold loan is quite quick. The loan amount gets credited to the applicant’s account within a day or two.
In the case of a personal loan, the processing and documentation usually take place after three to seven days. These documents are verified by the bank, which usually takes some time. However, there are also options for online loan approvals which can accelerate the process.
Loan Amount
The amount of gold loan is based on the value of the gold. You can get a maximum of 90% of the loan to value ratio of the gold.
Whereas, for personal loans, the amount of loan that can be procured, ranges from Rs. 50 thousand to Rs. 75 lakhs.
Interest rate
The rate of interest on gold loans and personal loans can differ based on the loan amount. In the case of gold loans, the rate of interest usually starts from 9.90%. As your gold already acts as security, the interest rates are low.
For personal loans, the rate of interest varies between 10.45% to 26%. Moreover, if you do not have a good credit score, it is always better to opt for a gold loan. Having a bad credit score can increase the interest rate on a personal loan.
Repayment tenure
The loan tenure of a gold loan is usually short and lasts between 1 day to 36 months. It is always wise to keep the tenure short. This will not increase your interest component, which in turn will save you from unnecessary financial obligations.
However, in the case of personal loans, the loan tenure is quite flexible and ranges from 1 year to 5 years. Based on your repayment ability, you can choose the tenure.
However, if you are financially confident, then you should opt for a gold loan to repay the loan amount faster.
Eligibility criteria
Any Indian resident above the age of 18 years can opt for a gold loan. There is no income barrier as your gold asset already acts as the security and the loan amount is determined based on the value of the gold.
Whereas, for personal loans, the borrower must have a monthly income of at least Rs. 25000 to apply for the loan. He is also required to have a credit score of 750 or above, along with that he needs to have a work experience of three years or above.
Repayment method
The repayment usually takes place in the form of EMI for both gold loans and personal loans. However, in gold loans, some lenders allow the borrower to pay off the interest component every month and pay the principal amount at the maturity of the loan. He can also pay the interest component at the time of loan disbursal and the principal amount can be paid when the term ends.
For personal loans, there are no such facilities and EMI is the only repayment option.
Processing Charges
Evaluating the processing charges will help you to understand which loan to procure. The processing charges for gold loan is negligible and is as low as Rs. 10. The maximum processing fee can be 2% of the loan amount and not more
The processing charges of personal loan can be of 3%.
The kind of loan you want to pick for yourself depends on your personal requirements. However, before choosing any of the two compare the rate of interest, EMIs and processing charges and other fees to make an informed decision.
