Personal Loans vs. Gold Loans: Which one is better?

Personal and gold loans are becoming the preferred options for emergency cash infusions. They are quick, easy to obtain, and disburse quickly, and you have no restrictions on how the loan proceeds can be used. While credit scores are examined during personal loan applications and gold loans to determine creditworthiness, they are not the only factor considered when loan approvals are granted. This is unlike other high-profile loans.

Let’s look at the basics of personal and gold loans. We’ll discuss the differences between these loans later to help you choose the right option for your financial situation. So, let’s get started.

What is a Gold Loan?

A secured loan for gold is one where your assets are used as collateral. As a loan, you will receive a certain percentage of the gold’s worth. This is not more than 75 percent. There are many ways to repay your gold loan. The lender will return the gold deposited to you once the loan has been paid off.

What is a personal mortgage?

A personal loan can be referred to as an unsecured loan. You don’t need to pledge any collateral. The interest rate will likely be higher because it is a loan without collateral. Throughout the loan term, you will need to repay the loan with easy monthly EMIs.

Personal Loan vs. Gold Loan

Are our gold loans better than personal loans? Or is it the reverse? Let’s look at these two options and see which one is best for you.

Interest Rates

The interest rates for personal loans range from 8.45% to 26% annually. The interest rate for gold loans ranges from 7.25% to 29% per year. You can get lower interest rates for personal loans and gold loans if you have good credit. If your credit score is not good, a gold loan might be better.

Loan Tenure

Personal loans can be repaid for up to five years. Lenders may extend the tenure up to seven years. The tenure for gold loans is typically between 7 days and 3 years. Lenders may extend the tenure up to five years. A personal loan may be a better option if you need a longer-term. A gold loan is a better option if you can pay the loan off faster (within one or two years).

Maximum Loan Amount

Personal loans typically range between Rs50,000 and Rs20 lakh. The amount of a personal loan typically ranges between Rs50,000 and Rs20 lakh. However, some lenders may offer higher amounts depending on your repayment ability and the loan tenure. The loan amount is usually 75% of the value of the gold.

Repayment Options

The monthly EMIs (interest and principal) are used to repay personal loans. On the other hand, the gold loan offers a variety of repayment options, including EMIs. A borrower with a gold loan can choose only to service the interest each month and leave the principal unpaid at maturity. You can also pay the principal and interest upfront when the loan is paid. A non-EMI repayment option may not be the best choice if you face repayment difficulties due to cash flow fluctuations.

Processing Time

Personal loan applicants must provide documents like payslips/ITR forms and other documents. It may take up to seven days to review and process documents. The new-age fintech lenders can process personal loan applications with a quicker turnaround time.

The lender will verify the gold pledged to determine eligibility for a loan amount. A credit score may not be considered. This saves time and allows the loan to be approved in the shortest possible time.

Processing Fee

Personal loans may have processing fees that can reach up to 3% of the loan amount. Lenders might charge a processing fee between 0.10% and 2% of the loan amount for gold loans. Flat fees can also be charged, as low as Rs10. Compare the processing fees of the two loan options and do the math to determine the actual cost of getting the loan.

Personal loan vs. gold loan Which one is better? A personal loan is better if you have good credit and can borrow more money over a longer-term. People with low credit scores or who need more repayment flexibility are better suited to gold loans. The best option for you depends on your personal needs and profile.