Sometimes, we are ambushed with financial uncertainties, leaving us high and dry. These are not the times to fret, but rather to look for possible options that could provide a solution in the market. These are the times when financing products such as a personal loan or a gold loan is the best available option.
Both these loans are quick and do not have any end usage restrictions. But how do you choose between a gold loan and personal loan? Which is better?
Let’s have a closer look at their differences.
Gold Loan vs Personal Loan: Which is better option?
Criteria
Gold loan
Personal loan
Eligibility
Any major can apply for a loan against gold without any income proof.
Getting a personal loan approved can be difficult for someone with no regular income source.
Additionally, when it comes to gold loan vs. personal loan interest rates, personal loan rates are also determined by your eligibility and credit score.
Interest Rates
Interest rates are low because the pledged gold reduces the risk of non-payment
Interest rates for personal loans vary among lenders.You will also find that personal loan rates are often much higher
Loan Tenure
Up to 3 years
12 – 72 months
Processing fee
Nominal or no processing fee
The processing charges usually go up to 3% for personal loans
Disbursement speed
Immediate sanction
Instant approval
Security
Gold is used as a collateral
There is no need to pledge collateral to avail a personal loan
Pre-payment charges
Zero pre-payment penalties
Pre-payment penalties are applicable
Pay-back options
Pay only the interest during the loan tenure, with principal to be paid at the end of the tenure
Equated monthly instalments( EMIs)
What is Gold Loan?
A gold loan is a secured loan. In simple terms, you place physical gold (such as jewellery, coins etc) that you own as collateral for getting a loan. Gold loans can help you get your money requirements if you’re in a hurry. There’s no need for a guarantor in the case of a gold loan.
Pros & Cons of Gold Loans
Pros – Gold Loan
Hassle free processing: Generally, gold loans are processed quicker. Documentation is also basic and the loan disbursement can happen in a few hours.
No Credit Checks: One of the advantages of a gold loan is that the lender doesn’t do credit checks unlike unsecured loans like personal loans. In other words, you don’t need to share your CIBIL score or declare existing loans or other debt obligations.
Competitive Interest Rates: The interest rates on gold loans are very competitive and hence customers prefer gold loans from reputed NBFCs as against local money lenders.
Flexible repayment schedule: Gold loans offer a high level of flexibility when it comes to repayment schedules. Customers can choose to repay as regular EMIs like normal loans or even choose to service interest during the loan tenure and then pay off at the end of the period.
Zero Pre-payment Penalty: Customers can opt to pre-pay loan amount without any penalties being levied
Cons – Gold Loan
Physical Requirement of Gold: The biggest drawback of a gold loan is that you need to have physical gold. So if you’re starting up in your career or in need of money for a wedding expense, a Gold loan may not be the ideal option for you
Asset Risk: Since Gold Loan is a secured loan, your asset is at risk of liquidation in case you are not able to repay the loan on time
Shorter Tenure: Typically Gold Loan tenures are 3 years or lesser whereas a personal loan can be for a longer period. Hence, for high loan amounts, the EMI payments can be a bit of a worry.
What is Personal Loan?
A personal loan is essentially an unsecured loan and it doesn’t need any collateral. A personal loan is ideal for fulfilling short-term financial obligations. Let’s say, you want to take a vacation but don’t have the required funds immediately. A personal loan is a great option to consider and with a good credit score, you can get a personal loan at a reasonable rate of interest. For e.g, you can avail Tata Capital’s personal loans for uptoRs 25 lakhs at attractive interest rates starting at 11.49%. So whether it’s a financial emergency or a loan to cover wedding expenses, a personal loan is an ideal choice for many customers.
Pros & Cons of Personal Loan
Pros – Personal Loan
No Collateral: A personal loan doesn’t need any collateral. So, in terms of need or an emergency, a personal loan is the best solution to go with
Multi-Purpose loans: A Personal loan can be availed of for many reasons such as higher education, vacations, wedding, home renovation, bridge payments for a home loan down payment or even in the case of an emergency that was unforeseen.
Basic Paperwork and documentation: For a personal loan, all you need is basic KYC information documents. If you have a Pan Card, Aadhar Card and CIBIL score, you’re all set. Tata Capital offers you personal loans on the basis of your salary slip details and address proof. Tata Capital also offers instant online approval.
Quick Disbursal: Disbursement of personal loans is also faster than most bank loans. Tata Capital, for instance, disburses your personal loan within 72 hours.
Cons – Personal Loan
Credit History and Eligibility Criteria: Being an unsecured loan, personal loans are disbursed only after checking credit history and eligibility criteria of the borrower.
Prepayment Penalties: Personal loans come with a penalty if pre-payments are made. However with flexi EMI options, like the one Tata capital has, you can make pre-payments at periodic intervals.
How to decide between a Gold Loan and a Personal Loan?
The answer ultimately depends on your priorities and the assets you have in hand. While gold loans may seem a safer option, there are always two sides to a coin, even gold ones.
Though they don’t require a credit score, offer a flexible payment method, and charge nominal processing fees and pre-payment charges, there’s always a risk of you losing your assets in case of non-repayment of the loan. Also, a shorter overall tenure means a tight EMI schedule, with the amount increasing drastically with the amount borrowed.
On the other hand, personal loan are unsecured, which means you don’t need to present collateral. But this usually comes with a bump in the personal loan interest rates. Credit history also comes into play here, since bank needs to know if you’re capable of repaying the loan.
In conclusion, both loans can be useful, depending upon your situation. If you’ve got spare gold in some corner of your house, then it’s good to utilize it for personal finance. If you’re in a deficit of such luxuries, then a personal loan might be the way to go.
If you’re a millennial, chances are you might not have any gold lying around. In such a case, we at Tata Capital have affordable personal loans for you to finance your next purchase.
07 February 2024
7 mins read
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