Everyone requires financial help at some point of time and people usually find loan a feasible choice. However, there are various options available, and you might find it tough determining among the distinct options available. Personal loan and gold loan have quickly become a well-known choice for exigency cash infusion. The personal loan and gold loan benefits are clear – they are simple to obtain, their disbursement is instant, and they also have no restriction on the loan proceeds usage. While credit profile and score are reviewed during personal loan and gold loan applications to evaluate the borrower’s credibility, it makes complete sense to understand the loan type that you take up and match your needs.
Note that in the case of a gold loan, the proceeds provided to you as loan are determined based on the “gold loan rate today” approach and most lenders often offer a lower gold loan interest rate owing to its secured nature than unsecured personal loans. The lowest gold loan interest rate in the market begins from 9 per cent per annum onwards.
Let’s check out the advantages of gold loans and personal loans. Once done, we will figure out the distinctions between both the features to know the best option as per your financial requirements. So, let’s start –
What’s a gold loan?
As mentioned above, a gold loan by nature is a secured option. To avail the gold loan option, you must deposit your gold as security or collateral. A specific percentage of the gold’s value is given to you in the form of a loan. Gold loans provide great flexibility in repayments and offer various repayment choices. Once you repay the loan, the lender hands over the deposited gold taken from you as collateral or security.
What’s a personal loan?
A personal loan by nature is an unsecured credit option. It means you do not require holding any collateral or assets. As this is a security free loan, the rate of interest most likely may be higher. You must ensure to repay the loan in simple and convenient monthly EMIs via the repayment loan tenure.
Both personal loan and gold loan do not have any end usage restriction on loan proceeds. Also, they come with shorter processing time-period, making them a suitable choice for mitigating your financial exigencies and shortfalls. As an outcome, those holding some spare gold might find it a little tricky in selecting between personal loan and gold loan.
Personal loan vs. gold loan –
Gold loan is a secured credit option wherein you as a borrower must pledge your gold securities and assets and get a percentage of gold value in the form of loan proceeds. Generally, the LTV (loan to value) ratio for gold loans is generally up to 75 per cent and might differ from one bank lender to another. Once the loan proceeds are sanctioned as well as disbursed, the borrower pays loan according to the agreed conditions. Once you repay the whole loan proceeds along with the interest constituent, the lender returns your gold that you provided as collateral or security.
As the borrower provides gold jewelry as security or asset, the credit score may not be of much importance for determining their loan approval. To get the loan, an individual requires taking their gold securities to an NBFC or bank for value evaluation. The gold loan tenure is generally from 7 days to 3 years.
In contrast, personal loan is an unsecured credit option, even called signature credit and does not need you as a borrower to offer as security or collateral for availing the loan proceeds from the lender. Unlike gold loans, a personal loan is not disbursed instantly by financial institutions as they take considerable time to assess the borrower’s credit history and profile before providing the loan.
Doing so allows the lender to get a thorough idea about the borrower’s credit repayment past record. Hence, the credit past record plays a major role in loan application approval. Besides credit history and credit score, the amount needed by a borrower is even assessed by the financial institution by NBFCs and banks depending on their income on a monthly basis. To get a personal loan, you need not require visiting any NBFC or bank as they now can apply for the same through the online mode. The personal loan tenure is generally anywhere from 12 months to 60 months.
Let’s understand between the two credit options –
Processing time-period
Applicants of personal loan require submitting their ITR form or pay slip and distinct other documents for processing their credit application. As the authentication of such documents need some time, regular personal loan disbursement generally may take anywhere between 2 days and 7 days. However, in the case of pre-approved personal loan, the disbursement of the loan proceeds may be performed on the same day of placing an application for a loan.
Loan proceeds
Loan proceeds range anywhere between Rs 50,000 and Rs 20 lakh in the scenario of a personal loan. However, at times a few lenders may agree to disburse loan proceeds of as high as Rs 40 lakh. Being a secured credit option, gold loan proceeds majorly are based on the value of the gold provided as security or collateral. However, note that the Reserve Bank of India has barred a few lenders from processing the gold loan of over 75 percent of the gold’s value.
Interest rate
The personal loan interest rate ranges from around 10 per cent to 24 per cent per annum. The gold loan’s rate of interest can range anywhere between 9 per cent and 29 per cent per annum based on the LTV (loan to value) ratio, loan tenure, repayment option type, etc. The rate of interest on gold loans is usually higher for the ones with a higher repayment tenure. For the ones with an excellent credit score and profile, the rate of interest might not vary much between personal loan and gold loan. However, a gold loan may come across as a comparatively excellent choice for the ones with a low credit score and poor credit profile.
So, the decision to choose between the two options – gold loan and personal loan must depend upon your requirement, preference, and suitability.
