Which works better: Gold loan Vs Personal loan

A person may need assistance at any time and often requires money temporarily. There may be several reasons for this. For example, they may need to finance the needs of a newly established business, repay borrowed funds, pay fees for school or higher education, renovate property, fulfil travel objectives, or cover medical expenses.

Gold loans and Personal Loans are highly desirable choices for overcoming liquidity shortages, particularly those caused by crises or income loss. However, knowing more about these options is essential to identifying which best meets the needs. Read the detailed guide below to understand the difference between a gold loan and a personal loan and which works better.

Understanding Gold Loan

Gold loans are secured loans obtained by pledging your gold. They involve the borrower pledging his gold assets and receiving a percentage of the gold price as a loan amount. Depending on the lender, loan-to-value (LTV) ratios for gold loans can generally range from up to 75%. After the loan amount has been approved and disbursed, the borrower repays the loan according to the conditions set forth. When the borrower repays the total loan amount, the lender returns the gold seized as security.

For gold loans, the credit rating is not a criterion in determining their approval since the borrower has already provided their gold assets as security. To apply gold loan, a person must take their gold holdings to a bank or NBFC for valuation purposes. Gold loans usually have a tenure of seven days to 36 months.

Understanding Personal Loan

Personal loans are unsecured credit, also known as signature credits, and do not require the borrower to provide any collateral to the lender. Unlike gold loans, personal loans are not immediately granted because banks and NBFCs process loan applications. They require time to check the borrower's credit history before granting a loan. Lenders analyse a borrower's credit payment history in great detail. Therefore, credit history has a vital role in approving a loan application.

Banks and NBFCs also assess the amount borrowers require, in addition to their credit score and history, based on monthly revenue. Personal loans are usually between 12 and 60 months in duration.

Gold Loan Vs. Personal Loan

Let’s now look at the differences between gold and personal loans based on different parameters.

Interest Rates

Interest rates vary from one lender to another, such as for gold and personal loans. The duration of the loan is another factor influencing interest rates. Interest rates are higher when the duration is extended. This provision covers gold loans and personal loans. The interest rates on gold loans are, in fact, relatively low compared to those of a personal loan.

This is because gold loans are secured since the borrower deposits his gold assets with the lender. This reduces risk in case of defaults. On the other hand, personal loans will attract higher interest rates because they are unsecured. However, they are subject to change depending on the lender, loan duration, and interest rates.

Principal Amount

The principal amount of gold loans depends on the total value of the borrower's pledged gold assets. Banks and NBFCs offer gold loans based on market prices. These institutions consider the purity and weight of gold. So, the amount sanctioned for gold loans depends on its per-gram value and purity. You can use the gold loan calculator to obtain a suitable loan amount according to your needs and financial condition.

As in the case of personal loans, the amount to be borrowed depends on the borrower's credit history and monthly income. Therefore, if the applicant's credit score does not improve, he may find it difficult to obtain the loan.

Processing Time

When it comes to gold loans, the loan amount can be received in hours or minutes. After the required paperwork, the individual can take the money directly from the person or have it transferred into their bank account. Factors such as the gold's purity, weight, and current market price determine its value.

The processing period for personal loans is longer. The lender must verify the filed documents and the borrower's credit history before approving the application. After all, there is no collateral involved.

Conclusion

The borrowers always find themselves in a dilemma between gold loans and personal loans. A gold loan is a security loan and thus offers lower interest rates. However, interest rates in personal loans are more expensive than gold loans as they are unsecured. In addition, gold loans are subject to lower processing fees and other charges than personal loans, which are subject to relatively higher charges. Individuals can use both personal and gold loans to manage emergencies or important expenses. You can choose between the two based on your unique needs and financial strength.

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