Personal loans and gold loans are not subject to any restrictions as far as loan proceeds’ end use is concerned. They are also easier to process, making them an ideal choice for financial emergencies and short-term funding. And that is why it may be difficult for those with large gold holdings to decide between the two.
Let’s look at these two loan options and find out which one is better for you—
- Ease of Processing:- Personal loan applicants must submit payslips/ITR forms, as well as other documents, in order to have their loan applications processed. These loans are usually disbursed within 2-7 days after the loan application is submitted. This is due to the time required for verification. Some lenders also offer personal loans with a faster turnaround time.
Contrary to a personal loan application, a lender will verify that your gold pledged is genuine and calculate your loan eligibility without any credit checks. If you’re in financial distress, have gold lying around, or have poor credit, a gold loan will be your best choice to get a larger loan amount within the fastest time. And then you can do gold loan payment online also.
- Loan Proceeds:- Personal loans can be from Rs. 50,000 to Rs. 20 lakh. Some borrowers may request a loan amount that is higher than this. It all depends on the borrower’s ability to repay and the loan term.
A gold loan is a secured loan and depends on the value of the collateral, i.e., gold. The RBI has prohibited lenders from approving gold loans exceeding 75% of gold’s market value.
- The Rate of Interest:- Personal loans have an interest rate between 8.45% and 26% per year. Interest rates on gold loans range from 7.25% up to 29% per annum. The loan term, LTV ratio, and type of repayment option chosen will all affect the interest rate. For those with longer tenures or higher LTV ratios, interest rates on gold loans tend to be higher. The difference between a personal loan and a gold loan might not seem significant for those with a good credit score. For those with poor credit, however, gold loans may be a more affordable option.
- The Tenure:- Personal loans can be repaid for up to five years, with some lenders offering tenures of up to seven years. The tenure for gold loans is from seven days to three years, with some lenders offering tenures up to five years. A loan on gold is a better option for those who are confident that they will be able to repay their loan in one to two years. A personal loan is a better option for those who need a larger loan amount and a longer-term.
- Repayment of the Loan:- Personal loans are repaid using EMIs. These EMIs include both principal and interest components. The EMI-based repayment scheme is also available for gold loans, but there are other repayment options too. Some gold loans allow borrowers only to service the interest portion each month, leaving the principal amount to be repaid on the maturity date. Others allow borrowers to pay their interest component upfront and the principal amount later at the end of the loan term. The non-EMI option for gold loans may be good for those with short-term cash flow problems and repayment constraints.
Whether you go for a personal loan or gold loan will depend on your financial situation and needs. For those who require a larger loan amount and longer-term, personal loans are more appropriate. Individuals with poor credit or who need more flexibility in repayment can get funds at affordable rates by applying for gold loans.