By Rupeezo | 3rd, Mar, 2023
Gold Loans and Personal Loans are amongst the most preferred loan options that allows for quick disbursal of funds. Also, the easy documentation and the minimal restrictions involved makes them the go-to option.
Although both Gold Loans and Personal Loans are great options to meet your urgent cash needs, these loans differ in certain aspects such as the interest rate, borrowing amount, eligibility criteria, and the other benefits of availing such loans.
To know more about both these loans in detail, and decide which is better Gold Loan or Personal Loan, read on!
A Gold Loan is a type of a secured that is obtained by pledging gold as a collateral, gold can be the gold jewellery or ornaments. The borrowing amount depends on a certain percentage of the value of the gold that you provide for collateral.
The loan amount you can get against the gold is typically 75% of the gold’s value. This 75% value is set by RBI for all banks and NBFCs. Since it is a secured loan, the interest rate on a gold loan is lowered as compared to the other type of loans.
A Personal Loan is an unsecured loan where you do not need to pledge any collateral against the loan. You can get a personal loan to meet different financial requirements such as medical emergencies, education, debt consolidation, etc. The loan amount that you can get depends on your income, credit score, and other factors set by the lenders. Since it is an unsecured loan, the interest rates for a Personal Loan are usually higher than other types of loans.
To know more about Gold Loan or Personal Loan and which is better, let’s have a look at their various advantages and disadvantages.
Low-Interest Rates: The interest rates on a gold loan are relatively lower as it is a secured loan.
Fast Processing: You can easily and quickly get a gold loan. Usually, the loan is disbursed within 30 minutes to an hour. It may extend up to a few hours depending on the process of the bank or lender.
No Need for Income Proof: Gold Loans involved minimum documentation and do not require income proof. That means you do not need to have a source of income to avail of a gold loan.
No Need to Assess Credit History: You do not need to worry about your credit score for getting a gold loan. So even if your credit score is not so good, you can still get a gold loan.
Flexible Repayment Terms: You also get the benefit of flexible repayment options if you go for Gold Loans. You get the option to pick a repayment tenure that best fits your financial situation.
Apart from the quick disbursal time and repayment flexibility, gold loans also come with some limitations. You need to know the difference between Gold Loan and Personal Loan before you apply for any of them.
Gold at Risk: The fact that you are pledging collateral, puts your gold at a risk. In case of failure to repay the gold, you will end up losing your gold as the lender will liquidate the gold to recover payments. Besides the financial loss, this can be emotionally distressing since gold holds an emotional value in Indian families.
Limited Loan Amount: If you require huge funds to finance your business or meet with a medical emergency, then the gold loan may not fulfil your needs. The loan amount that you can get is limited by the value of the gold you pledge, so you cannot ask for a higher loan amount than that.
High Processing Fees: Gold Loans may have higher processing fees as compared to personal or other types of loans. However, many lenders may offer gold loans with a zero to 1% processing fee.
High Loan Amount: The first and foremost advantage of a personal loan is the availability of a higher loan amount when compared to gold loans. If you have huge financial needs, then a personal loan is your go-to option.
No Need for Collateral: One of the biggest benefits of a personal loan is that it is an unsecured loan, which means you do not have to pledge any collateral. This makes a personal loan a feasible option for you if you do not have any assets to pledge as collateral.
Quick Disbursal Time: Personal loans have a fast disbursal time, as the funds are disbursed within a few days of loan approval. Thus, a personal loan is ideal for those who need urgent funds.
Flexible Repayment Options: Personal loans offer a lot of flexibility when it comes to repayment terms, loan amount, and tenure. You get to choose the loan amount and tenure that suits your financial needs and can also prepay the loan without any penalty.
Decent Interest Rates: Personal loan interest rates are generally lower than other types of credit or loans you may take. This is another reason that makes them a good borrowing option.
Eligibility Criteria: Personal loans are unsecured loans, and therefore, lenders impose strict eligibility criteria such as income, credit score, employment status, and age. It is crucial to meet the eligibility requirements to get qualified for a personal loan.
High-Interest Rates: Although personal loans can be availed at decent interest rates, the rate may get higher depending on the lender or your loan requirements. However, as compared to gold loans,
personal loans have a higher interest rate as they are unsecured loans not requiring collateral. The interest rates can range from 10% to 30%, depending on the lender, loan amount, and tenure.
Processing Fees: Personal loans come with a processing fee, which is generally 1%-3%. This can vary depending on the lender offering the personal loan. This fee increases the cost of the borrowing amount.
Prepayment Penalty: While personal loans offer the flexibility of prepaying the loan, some lenders charge a prepayment penalty, which can be up to 5% of the outstanding loan amount. This penalty can make it expensive for the borrower to repay the loan.
If you want to decide between Gold Loan Vs Personal Loan to know which is Better for your needs, you have to know about the eligibility requirements.
To get a personal loan, you have to adhere to certain eligibility requirements given below. The requirements may vary from lender to lender.
Typically, the following eligibility criteria need to be fulfilled, if you want to qualify for a gold loan. There could be slight differences in the eligibility requirements depending on the bank or NBFCs offering the gold loan.
Based on the various aspects of gold loans and personal loans mentioned above, you can decide which one is the better option for you.
To get a Personal Loan Online, reach out to us.
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