Personal Loan vs. Gold Loan: Which is Better?
There are two choices available for raising funding quickly to meet sudden requirements, namely personal loans and gold loans. Which one is the better choice? Here’s taking a closer look.
Are you looking for swift and hassle-free funding to tide over a cash crisis or any financial emergency? You may want to consider personal loans or gold loans. However, which one is a better option for you? Here is a brief guide for your perusal.
Gold Loans Decoded
These are loans where you raise funding against your gold assets. You then get a percentage of the value of your gold as the amount. This is a secured loan and you will be repaying monthly EMIs until the entire amount is cleared, with accompanying interest. Thereafter, the pledged gold is returned to the borrower by the lender.
Personal Loans Decoded
Personal loans are unsecured loans, i.e. they are not secured with any collateral or guarantee. The loan amounts are comparatively lower and applicants will have to meet varying criteria including monthly income, repayment abilities, debt-to-income ratio and credit scores for getting their loans sanctioned. You can always use an SBI personal loan calculator or any other online calculator for working out your monthly EMI.
Which one to choose?
- Interest- Since gold loans are secured loans, i.e. they are secured with the gold deposits that you pledge, the interest rates tend to be lower than personal loans, which are unsecured loans. The interest outgo will eventually be higher for a personal loan since it is not backed by any collateral.
- Tenure- Personal loans have 1-5 year tenures, while gold loans come with smaller periods of repayment from seven days to three years on average. A higher tenure automatically means paying more interest, so keep that factor in mind. Yet, the shorter tenure of a gold loan may give you undue stress, particularly if the interest rate is on the higher side.
- Repayment Choices- Gold and personal loans both enable repayment through EMIs (equated monthly installments), which are payable every month. Gold loans usually have more flexible terms, since they are secured loans. Some come with only-interest repayment, enabling borrowers to start paying the principal amount only from a particular date. Many gold loans offer a choice to pay the interest, and the borrowers can pay the principal amount in full at the end of the tenure.
- Processing Aspects- Gold loans are processed faster than personal loans, since they are based on the deposits submitted by borrowers. Personal loans are also processed faster than many other types of loans. However, the lender will evaluate the credit score, existing debts, income, and other factors. 2-7 days are required to get your personal loan sanctioned.
- Processing Charges- Gold loans will have processing charges along with fees like gold valuation charges, documentation charges, administrative charges, and more. Personal loans have processing charges, along with insurance, and service costs. You should take both these charges into account, before determining how they influence the cost of the loan.
The ultimate decision has to be taken after undertaking thorough research and evaluation. If you are okay with a longer processing timeline and a slightly higher rate of interest, then you can opt for a personal loan. If you have gold assets that you can safely pledge as collateral and require a loan in super-quick time, then you can get a gold loan, especially if you are okay with a shorter period of repayment and slightly higher charges. It all depends on your financial requirements, circumstances, and repayment abilities.