During financial adversities, additional financial assistance for correctly deciding on whether to opt for personal loan or a gold loan might be helpful.
All of us need financial help at some point of time in our lives. There are times when we look out for loan options when some financial need arises. Today, there are multiple borrowing options available, and a person searching for a loan for the first time might face issues deciding from the available options.
People usually take a gold loan and personal loan in case of emergency or cash crunch. While lenders check credit scores while evaluating your gold or personal loan application, your credit score is a much less influential factor in the case of more high value loans.
Following is a comprehensive description of a personal loan and gold loan so you can make an educated decision while taking a loan during an emergency.
The next time you go to a bank to take a personal loan, on which interest rates can be as high as 20% - wait! There’s a better option, especially for those who have gold lying idle in their almirahs. You can get a gold loan at half the rate! And that’s not all! Read more below to learn the difference between personal loans and gold loans.
Here, the borrower gives gold assets with a fraction of that assets’ value as a loan amount. This is known as a secured loan. Now, the borrower repays monthly payments until the borrower settles the loan, after which the lender gives back the gold, held as a collateral.
Personal loans are similar to gold loan, except this is an unsecured loan, which means they are devoid of the safety of collateral. Without collateral that guarantees the receivable , the effective loan amount will usually be lower, and much more difficult for the loan applicant to gain the loan approval.
For the application part for both, the loan provider will evaluate the borrower’s credit profiles, but it’s usually not an influencing factor in the approval of a gold loan.
The lending company charge high-interest rates depending on the payout of the loan. Usually, a gold loan interest can be somewhere from 7.5% to 29%. But, a personal loan may vary from 9% to 24%. Risk assessment is of utmost importance in evaluating the interest rate of a loan. A gold loan has low-interest rates as these are secured loans in which the borrower is giving the collateral to mitigate their risk of not paying the loan. Personal loans have a high interest rate as they are unsecured.
Personal loans have duration between one to five years, and gold loans have a shorter payoff period somewhere between three years to about seven days, which also is dependent on your loan amount. indiagold is special - it offers 6 month and 12 month schemes with option to foreclose the loan early.
If a borrower wants more time to repay the loan, then they can just renew the loan after closure. That way they would not have to pay back the principal. A lot of business owners who have gold lying idle in homes, use gold loans for working capital requirements.
Both the personal and the gold loan allows the borrower to payoff their loan with help of an EMI in order to avoid any repayment errors. EMI is a set amount of monthly repayment which both the borrower as well as the lender agreed on before finalizing the deal, but gold loans have greater flexibility in the repayment options. In gold loans at indiagold, one can even pay extra (beyond the EMI). Any extra amount is then used to reduce the principal, which further reduces the interest burden on the borrower! That’s double the benefit!
Borrowers take any gold loan or a personal loan mainly in financial trouble as lenders can help borrowers in the least period of time. Though, the borrower must provide the required documentation with their loan application. While this is a cumbersome process, gold loans are famed for making funds available more more easily than a personal loan. As personal loans have a much more exhaustive approach to the approval process, it normally takes close to two to seven days for the funds to get finally deposited in your bank account. Few lenders might not pass a loan if they find out that the borrower’s credit profile is not adequate or not up to their working standards.
Gold loans can be processed by indiagold within a span of 30 minutes, that too at the customer’s home itself. The borrower does not need to go to a branch and wait in line. It is just like booking a taxi from Uber or a cleaning service from Urban Clap. The Loan Manager comes to the borrower’s home and books the loan at their home at their convenience! The entire process is completed in less than 1 hour.
Lenders will usually lend gold loan to an applicant as quickly as possible, although this includes various processing charges that the borrower has to pay prior to you getting your money. Most banks and NBFCs charge high processing fees. With a personal loan having these fees, they are usually confined to the service charge, insurance fees, and fees for processing the funds. Processing fee can be as high as 1% of personal loan, so be careful of that.
While with gold loans, the borrower has to bear the usual processing fees with additional charges like getting the gold valued fees which is a charge that is added on recent gold market value, admin costs, documentation fees, and many more. Considering these additional costs will help the borrower to know the real cost for a gold loan or a personal loan much more appropriately and choose the one which best suits your needs.
In our study between the gold loan and the personal loan, we can conclude that if you can withstand delay in receiving the loan and are okay with long payoff tenure along with much bigger rates of interest, go for a personal loan. On the flip side, if you have gold as an asset and can wait to avail a loan, even though you get a short payoff duration, you can choose to go for a gold loan.
Although, the important thing about both the loans is, a lack in credit history is not against the borrower’s chance of getting a loan because there are a lot many factors influencing the lender's decision to make a loan approval.