The decision between a personal loan and a gold loan frequently becomes crucial in the world of finance. Both solutions have special benefits and can be used for various purposes and circumstances. Gold Loans take advantage of the value of your valuable assets, but Personal Loans are the all-around heroes that give you financial flexibility without requiring collateral. Let’s examine the differences between Gold Loan vs Personal Loan, determining when the latter is better.
Gold Loan vs Personal Loan Comparison
| Features | Personal Loan | Gold Loan |
| Borrowing Limit | Rs. 50,000 to Rs. 20 lakhs or more | Rs. 10,000 to Rs. 15 lakhs |
| Loan Duration | 12 to 60 months | 6 to 12 months |
| Interest Rate | 12% to 20% | 10% to 16% |
| Additional Charges | 2% or more processing fee, 5% or more prepayment fee | 1% processing fee, 1% prepayment fee |
| Eligibility Requirements | No collateral but strict eligibility criteria | Gold assets as collateral |
Gold Loan vs Personal Loan
What is a Personal Loan?
A personal loan is one type of unsecured loan that requires no collateral or security. You can use it for various purposes, including weddings, home renovations, travel, education, and medical expenses. Banks, non-banking financial companies (NBFCs), or online lenders offer personal loans based on your credit score, income, and other factors. When you receive approval and disbursement for the loan, the loan amount, tenure, and interest rate are predetermined.
What is a Gold Loan?
A gold loan is a secured loan for which gold coins or jewelry are required as collateral. The lender determines the loan amount based on the value and purity of your gold. You can use the loan money for anything as long as it is legal. You can obtain a gold loan from a bank, an NBFC, or a gold loan company, depending on your gold value and other requirements. The loan amount, term, and interest rate are subject to change based on the policies of the lender and the state of the market.
Borrowing Limit
For both kinds of loans, lenders have minimum and maximum borrowing amounts. The typical limit for gold loans is in the range of Rs. 10,000 to Rs. 15 lakhs. The borrowing limit on a personal loan can be anywhere from Rs. 50,000 to Rs. 20 lakhs or more. The borrowing cap differs for each lender.
So, a personal bank loan is the best choice if you need to borrow more than Rs. 15 lakhs. For smaller sums, you can apply for a gold loan.
Loan Tenure
It’s the time frame that you have to pay back the loan. Since personal loans are intended for larger, longer-term expenses, they typically have longer loan terms than gold loans. Depending on the lender, a personal loan can be repaid in 12 to 60 months.
“Gold loans, designed for smaller and more immediate expenses, come with shorter loan terms. Depending on the lender, you must return a gold loan within three to thirty-six months.”
Interest Rate
The interest rate affects the cost of taking out a loan. Personal loans usually have higher interest rates than gold loans because of their unsecured nature and increased risk for the lender. Your annual interest rate could range from 10% to 24%, depending on the lender and your credit history.
However, because gold loans are safer and more secure for the lender, they carry lower interest rates. Annual interest rates range between 7% and 16%, depending on the lender and market conditions.
Eligibility
Since personal loans are dependent on your income and credit history, they typically have more stringent eligibility requirements than gold loans. You must fulfill the lender’s minimum requirements for age, income, employment, and credit score.
However, because lenders base gold loans on your gold value, they simplify their qualifying requirements. You only need to meet the lender’s KYC requirements and minimum age.
Pros: Gold Loan vs Personal Loan
Personal Loans
- Collateral is not required for personal loans. They typically have lower interest rates than credit cards and can be used for any purpose.
- Strict eligibility requirements for personal loans do exist, though, and include things like a minimum income, a solid work history, and a good credit score.
- Furthermore, failing to make repayments on time can hurt your credit score and your ability to obtain credit in the future.
- In addition, other fees and processing charges raise the cost of borrowing.
Gold Loans
- You must pledge your gold possessions, like coins or jewelry, as security for gold loans. The loan amount can be up to 75% of the gold’s market value, and the interest rates are typically reasonable.
- The possibility of losing your gold if you are unable to repay the loan, the volatility of gold prices and quality, and the high margin that lenders charge are some of the disadvantages of taking out a gold loan.
- In addition, obtaining a gold loan doesn’t require a credit score or history, and the application process is quick and simple.
How to Choose Between Personal Loan and Gold Loan?
- A personal loan is an option if you want a longer loan term with a set payback schedule.
- You might consider a personal loan if you have good income and credit and need a larger loan amount for a longer period.
- You might consider a gold loan if you have gold assets, a low credit score, or no credit at all and you need a smaller loan amount for a shorter period.
- If you want a simpler application process and a lower interest rate, consider getting a gold loan.
- A gold loan is often the best option if you feel comfortable risking the loss of your gold in the event of default.
- You must favour a personal loan if you feel uneasy pledging your gold as collateral and would rather keep it secure.
Conclusion
Your decision between a personal loan and a gold loan will depend on your particular needs and circumstances. A personal loan offers flexibility if you need a larger amount without collateral, but it has stricter qualifying requirements and higher interest rates. On the other hand, a gold loan will be most advantageous to you if you own gold assets. It has a greater default risk, but approval times are quicker, and interest rates are cheaper.