These days there are multiple options available to take credit but to be away from a debt trap. It is vital to select the right kind of option for you. Two of the most preferred credit options available in the market are a personal loan and gold loan. Both the loan involves quick processing and easy disbursal. The main difference between these two is that one is a secured loan and other is an unsecured loan. However, there are advantages and disadvantages of both the loans, here are the pointers that will help you decide which loan one must opt for.
What is a gold loan?
A gold loan is a secured loan which a borrower avails after pledging a gold ornament as collateral. Gold loan is a preferred option for the people who want money instantly and for a shorter period.
What is a personal loan?
A personal loan is an unsecured loan, meaning a borrower is not required to pledge a collateral. Personal loans do not have any end usage restriction, and the interest rate of such a loan depends on credit score and applicants’ income.
Gold loan Vs Personal loan
Interest rate: Interest rate in both the loans, gold loan as well as personal loan differs. Rate of interest on gold loans is lower than a personal loan because it is a secured loan. Secured loans will always have a lower rate than unsecured loans because then a lender is not worried about a borrower’s creditworthiness. Gold loans interest rate ranges between 7%-13% whereas personal loan interest starts from 9% and goes up to 20%.
Loan amount: Personal loan amount ranges between Rs 50,000-Rs 25 lakh and some of the lenders also allow for a loan up to Rs 75 lakh. Simultaneously, the loan amount for a gold loan depends on the value of gold that a borrower pledges. RBI has allowed banks and NBFCs to give maximum 90% of the gold value as a loan amount. If your gold jewellery can fetch the loan amount you need, you should go for a gold loan; otherwise, a personal loan should be your choice.
Processing time: Gold loan involves less processing time because it is secured in nature. Usually, it takes 24-48 hours for loan disbursal. A borrower is only required to submit identity and address proof. However, the sanction of personal loan can take up to 3 days-7 days because a borrower must submit identity proof, address proof, credit score and income proof after which lenders do the verification. Due to all these procedures, the disbursal time increases. Nowadays, lenders offer pre-approved loans, which is a better option if you want a personal loan quickly.
Loan tenure: Loan tenure in the personal loan is one year to 5 years, and in a gold loan, it is six months to 3 years. Remember one thing; longer tenure means a higher rate of interest. So, suppose you are comfortable repaying the loan in a shorter tenure. In that case, you should go for a gold loan otherwise choose personal loan because longer tenure is a wise decision rather than landing yourself into a debt trap situation.
Eligibility: Eligibility criteria for a gold loan is easy when compared to a personal loan. A person can only avail a personal loan if he/she is above 21 years above, earning a minimum of Rs 25,000 per month and have a credit score above 700. To apply for a gold loan, a borrower should be above 18 years of age and have gold jewellery with them.
Processing fees: Processing fee is also an important factor that a borrower should consider while deciding which loan to take. Gold loans processing fees are lower than personal loans. Lenders charge 0.10%-2% on gold loan and up to 3% on a personal loan.
Availability of security: A person can take a gold loan only if you have gold jewellery to pledge as collateral. There is no need for security in personal loan. If you have a yellow metal to pledge then go for a gold loan, otherwise personal loan should be your choice.
Conclusion: The decision between gold loan and the personal loan will be purely based on borrowers need how much loan amount is required if he/she is getting a competitive interest rate and much more. Before applying for gold and personal loan, one must consider these points.