When you need money quickly, both a gold loan and a personal loan come in handy. This is because both financial facilities have an end-use limit on loan proceeds, making them the preferred alternative. These financial facilities are preferred, but their interest rates, charges, and fees are different. An unsecured loan is a personal loan, while a secured loan is a gold loan. And, you must choose between the two, based on your financial requirements.
Now that you know how to choose which type of loan to take, here are some guidelines to help you determine which loan is best for you.
- Processing Time
A gold loan is a secured loan with a concise disbursal period. The money is usually credited to the borrower’s account within 24 to 48 hours. On the other hand, personal loan application approval will take 3 to 7 days because the applicant must send pay stubs, bank statements, and other supporting documentation. These documents are verified by the lender after they are submitted, which prolongs the disbursement process. Many banks now give online loan approval, making the process of getting a personal loan quick and easy.
- Loan Tenure
Personal loans have terms ranging from one year to five years, while gold loans have terms ranging from one day to three years. Always keep in mind that extending the loan’s term would raise the loan’s expense in the form of interest. If you are confident in your ability to repay the loan in a shorter period of time, a gold loan is a way to go; if not, a personal loan is a way to go, particularly if the amount is larger.
- Processing Fee
The processing fee will assist you in deciding which loan to take. Processing charges for gold loans are as low as nil, although some lenders charge 0.10 percent to 1% of the loan amount. Processing fees on personal loans will reach 2.50 percent of the loan amount. Before making a decision, carefully compare the transaction fees.
- Repayment Option
Personal loans are repaid by EMIs, which include both interest and principal repayment elements. In contrast to the EMI-based repayment system, gold loans offer a variety of repayment options. While some gold loans allow borrowers to only service the interest component each month, leaving the principal amount to be repaid on the maturity date, others allow borrowers to repay their interest amount upfront during loan disbursement, with the principal component to be repaid at the end of the loan term.
As a result, those with short-term cash flow mismatches and repayment constraints may benefit from the non-EMI option of gold loans.
- Interest Rate
Both personal loans and gold loans have different interest rates. Since gold loans are secured loans, the interest rate is lower, starting at 9.50 percent. On the other hand, a personal loan has an interest rate that ranges from 10.25% to 13% per year. Borrowers may get more information on the lowest interest rate on personal loans as well as gold loans based on their individual profile/eligibility and then make an informed decision, depending on other factors such as protection and repayment.
- Loan Amount
Personal loans usually range from 50,000 to 25 lakhs, though some lenders will lend up to 75 lakhs. The amount of a gold loan, on the other hand, is determined by the value of the gold asset you are pledging as collateral. The RBI, on the other hand, has prohibited lenders from approving gold loans worth more than 90% of the gold’s value. If you have gold that meets your funding needs, a gold loan is an option; otherwise, a personal loan is a good option for high-value needs.
- Eligibility
Anyone over the age of 18 can apply for a gold loan, and there is no minimum income requirement since the loan is based on the gold value. On the other hand, a salaried employee must have a minimum salary of 25,000 to qualify for a personal loan. An applicant must have more than three years of work experience and a credit score of at least 650. Whereas, in gold loan credit score does not play a vital role.
- Documentation
For gold loans, identity proof, address proof, proof of ownership of pledged properties, and other documents are required depending on the lender’s requirements. PAN, identity evidence, address proof, income proof, and bank statements are necessary documents for personal loans. The loan amount is determined by the borrower’s income and job information.
- Other Charges
Borrowers may be charged transaction fees, insurance and service fees, gold valuation fees, paperwork fees, administrative fees, and other fees by gold loan lenders. Personal loan lenders may charge collection fees, taxes, and service fees. Borrowers should inquire about the complete list of relevant charges from their respective lenders to get full clarification.
The decision to choose one of the two credit options would be solely based on the needs and conditions of the borrower, but before making a final decision, compare the interest rate, processing costs, disbursal time, and other factors. Whatever loan choice you choose, make sure to assess your repayment and EMI payment capability to avoid damaging your credit score in the future.
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https://rupeek.com/blog/things-to-know-about-gold-loan-renewal/If you have repaid your loan amount in full along with the interest, you can take out another gold loan with the same lender, pledging the same gold assets.
