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.
What Is A Gold Loan?
A gold loan is a secured loan in which you have to pledge your gold assets as collateral. A certain percentage (not more than 75%) of the gold’s value is offered to you as a loan. You have various options to repay the gold loan, and once you repay the loan, the lender returns the gold back to you.
What Is A Personal Loan?
A personal loan is an unsecured loan. You need not put up any asset as collateral. You have to repay the loan through EMIs spread over the entire duration of the loan. The interest rate is likely to be high.
Which Is Better? A Gold Loan Or A Personal Loan?
Let us now determine which is better, a gold loan or a personal loan by analyzing the two types of loans based on various parameters.
The interest rate of personal loans ranges from 8.45% to 26% per annum. The interest rate on gold loans is in the range of 7.25% to 29% per annum. You can get lower interest on both your gold and personal loans if your credit score is good. However, a gold loan is a better option if your credit profile is poor.
For a personal loan, the tenure ranges from 1 to 5 years. For gold loans, the tenure ranges from 7 days to 3 years. For those who want a longer tenure, a personal loan is a better choice. If you can pay your loan quicker within 1 or 2 years, a gold loan can be a more cost-effective option.
The personal loan amount usually ranges from Rs. 50,000 to Rs. 20 Lakhs. Since a gold loan is a secured loan, the loan amount depends on the value of the gold pledged as collateral. 75% of the gold value is given as the loan amount usually.
A personal loan is repaid in the form of EMIs spanning the loan tenure. Whereas, with a gold loan, you have various repayment options including EMIs. f you have limitations on repayment due to inconsistent cash flow, a non-EMI repayment option is not judicious.
The processing time required for a personal loan may be around 2 to 7 days due to the time taken to process the loan application, submission of documents, and document verification. However, the modern age lenders such as instant loan apps can process the loan instantly or quickly. For a gold loan, the lender verifies the credibility of the gold offered as collateral to figure out the quantum of loan amount you are eligible for. A credit score is not required. There is no loan application or documentation process. A gold loan is sanctioned fast.
The Processing fees for personal loans can go up to 3% of the loan amount. For gold loans, the lenders might charge a processing fee of 0.10% to 2% of the loan amount. This can be as low as Rs. 10.
Gold Loan Versus Personal Loan? Which Is Better?
Which is better? Gold loan or personal loan? This depends on your credit profile and your requirements. If you have a poor credit score or Nil credit history, and if you need more flexible repayment options, then a gold loan may be the best suited for you. Whereas, if you need a larger quantum of loan amount for a longer duration and have a good credit profile, a personal loan may be a wise choice.