People often opt for loans during financial emergencies. The banks and non-banking financial companies offer loans at specific interest rates and the borrowers can repay the loans in EMIs. The most common answer during financial emergencies used to be personal loans. However, gold loan has made its way to the list of many borrowers in recent years.
Both sorts of loans have many salient features and benefits to offer to the borrowers. Many banks have added both to their financial offerings. The question that now arises is which one between a personal loan and a gold loan is the best suit for you.
Gold loan vs Personal loan
The market is filled with options for personal loans and gold loans. Most banks are now offering online services that have made the whole process convenient for all. You can avail a personal loanor a gold loan with minimal documentation at most banks. However, to see which one is better, let us compare the two based on the following parameters.
Which does not require collateral?
Gold loans mean availing a loan by keeping gold as collateral. The lenders provide you a loan amount after evaluating your gold. After you have availed the loan, you can repay the loan in pre-decided monthly installments. Once you have repaid the total loan amount, including the actual borrowed amount and the interest, you will get back your gold.
Unlike gold loans, personal loans do not require any collateral. When you make an application for a personal loan at your preferred bank, the bank evaluates your application and approves if you pass the eligibility test or vice versa.
Which is easily approved?
The gold loans are provided, keeping gold as collateral. In case the borrower fails to repay the loan, the bank can get back their money by auctioning the gold. The guarantee provided by the collateral makes gold loans a secured loan and hence, banks easily approve gold loan applications.
On the contrary, the risk factors associated with personal loans are higher than gold loans. There is no collateral involved and if the borrowers fail to pay back, the banks end up losing their money. Hence, getting approval for a gold loan is easier than getting approval for a personal loan.
Which requires less processing time?
Select a gold loan lending bank or non-banking financial company and visit the branch with the gold against which you want to avail the loan. The bank will evaluate the gold in front of you and will inform you how much loan you can avail. If you agree with the amount and are willing the take the loan, the bank will process the loan almost immediately with very little documentation.
Availing a personal loan is not as easy as availing a gold loan. Once you have made an application for a personal loan, the bank will verify the request, go through all the documents and run a credit score. The bank will give approval if you pass the verification. It will take 2 to 7 days for the bank to disburse the loan finally.
Which comes with a lower interest rate?
Since gold loans are secure in nature, banks offer gold loans at a lower interest rate than an unsecured loan. It means a gold loan will not burden you as much as unsecured loans.
The personal loan scores less than gold loans in terms of interest rates. Being an unsecured loan, the personal loan comes with a higher risk level and hence, the interest rates of personal loans are on the higher side.
Which does not charge prepayment penalty?
Gold loans generally allow prepayment without any penalty. It means you can pay back the loaned amount before the tenure ends and no penalty will be imposed on you.
Personal loans, however, have prepayment penalties. Bankes usually do not allow pre-closure of personal loans and if you opt for a pre-closure, be ready to pay a certain amount as penalty. The amount varies from bank to bank.
Which does not require a healthy credit history?
Due to the secure nature of the loans, the banks do not bother about the credit history while giving approval for a gold loan.
On the other hand, the credit score plays a key role in the approval or rejection of a personal loan. Banks prefer applicants with high credit scores as it shows the credibility of the applicants for relaying the loan.
The gold loan seems to be winning the race against personal loans. If you have a poor credit score and have fewer chances of getting approved for personal loans, a gold loan will be the best suit for you. With gold loans, you can get help during financial emergencies and obtain maximum utilization of your gold. However, note that if you fail to repay the gold loan, you will end up losing your gold. Personal loans do not have the same risk.