Financial emergencies can happen due to a number of reasons such as a medical emergency, wedding or sudden vacation plan. Personal loans and gold loans have their own set of advantages and disadvantages. Based on what is convenient for you, you can pick which loan to opt for to tide over your financial emergency.
If you are looking for a low interest rate, a gold loan would be a better option as the interest rates begin at 9.95% and can go up to 16% depending on the credit profile of the individual. This is because gold loans are secured loans, wherein you pledge your gold coins or jewellery for the loan amount. Personal loan interest rates begin at 10.99% and can go up to 32% depending on your credit profile of the individual. Interest rates are higher as a personal loan is an unsecured loan.
In a gold loan, only 60% to 75% of the gold’s market value is released as the loan amount. So, if the loan amount does not cover the financial emergency, you can opt for a personal loan where in the loan amount can range from Rs.20,000 and can go up to Rs.40 lakhs in some banks.
If you are unemployed or do not have a good credit score, then a gold loan would be a better option as they do not check one’s credit score and income proof as it is a secured loan. In a personal loan, the lender will check one’s credit score to assess their creditworthiness as it is an unsecured loan. Also, one must show income proof to prove that there is a steady monthly income that can help repay the loan on time without defaulting.
Personal loans have flexible tenures that range from 1 year to 5 years. This helps a customer pick a tenure based on their comfort and other financial obligations. Whereas, a gold loan generally has a shorter tenure that ranges from 3 months to 4 years in some cases.
Also, in the case of a gold loan, if one defaults on payments or cannot afford to repay the loan, the lender has the right to sell the gold and settle the loan. This can be a big loss for the customer. So, one must be very careful in the case of a gold loan as it is a secured loan. In the case of a personal loan, failure to repay the loan will negatively impact your credit score.
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