Which Is A Better Alternative: A Gold Loan Or A Personal Loan?
People who need some monetary assistance generally search for loan options that can cater for their needs. Among so many loans available in the Indian loan market, the borrower may find difficulty deciding the suitable borrowing option. Primarily, the debtors utilise gold loans and personal loans for emergency fund requirements. These loans provide quick disbursal of the loan amount and have manageable official documentation works to do.
Gold loans do not require the credit score of the borrower to be strong. Still, personal loans require a good credit score of 700 or more mandatorily, as creditworthiness is an excellent factor for the personal loan to get approved. So, now people mostly get confused about which loan is a better option for them. So, an informed, comprehensive study is given below for people in a dilemma of which is the better loan option to choose.
A loan against gold is, or gold loan, where a borrower keeps gold assets with the creditor as a guarantee and gets the loan amount. The value of the gold pledged against a secured gold loan determines the loan amount provided to the borrower. The borrower needs to pay a monthly instalment until the entire loan amount is paid off, and after that, the lender returns the gold deposited with him back to the borrower.
A personal loan is almost similar to a gold loan but is an unsecured loan where the creditor gets no collateral benefit for security purposes. If a person wants to loan an amount generated without keeping something as a guarantee, it is much harder for the loan applicant to get loan approval. But a personal loan can rescue people who are in immediate need of funds who do not have collateral to pledge.
The Gold loans tend to have a significant difference, compared amount of payout compared to the unsecured personal loan, so the interest percentage of these two loans differs from each other. Further, the gold loan per gram also differs from one gold loan scheme to another gold loan scheme. For example, where interest amounts vary from 7.5% to 29%, personal loans range from 9 % to 24%. This is because gold loans attract a low interest rate as the borrower puts collateral to reduce the risk of non-payment. At the same time, the personal loan has a higher rate of interest for its unsecured nature.
Another factor for a loan is the loan repayment period when the borrower needs to reimburse the loan. Gold loans generally have a shorter repayment period which ranges from 1 week to 3 years. Personal loans tend to have longer terms for repayment, which can range from one year to five years. The shorter loan tenure of a gold loan can be stressful but comes with a lower rate of interest. On the other hand, if a person wants to get a more extended period of repayment, then he needs to pay a higher rate of interest.
The personal loan and gold loan allow the borrower to pay back the loan with equated monthly instalments. But gold loans have flexible repayment options for their customers. Repayment options like interest-only repayment or bullet repayment system enable the borrower to pay back the sum according to their convenience. Therefore, the SBI gold loan interest rate or Punjab National Bank can be lower than other private banks and the same in the case of the personal l too.
The applicant's of a gold loan or personal loan want their lender to process their loan in the shortest amount of time. But the secured gold loan helps the borrower to procure the loan amount faster than a personal loan. Additionally, in gold loans, people have to pay the processing fees with additional charges for gold valuation, administrative cost, documentation fees and many other things. Whereas in a personal loan, the charges are limited to service fees, insurance and processing fees.
Must Read:- Objectives Of Personal Loan
