Personal Loan or Gold Loan??? In case there arises, a question which loan should one opt for? What are the factors one should examine to decide? We will try to answer and simplify through this article to arrive at a better option.
Both loans are known to have a faster processing time.
None restricts the end-use of loan proceeds and the borrower is free to use the loan amount in whatever manner he is pleased.
To understand better, we will check out on few factors and compare these two loan schemes.
- Loan amount:
A personal loan is an unsecured loan and the amount generally ranges anywhere between 50,000 to five lakhs. Some lenders can offer a higher amount as well to high-income clients. The repayment capacity of the borrower is a prime factor on the basis of which the lender decides the loan amount.
On the other hand, Gold Loan is a secured loan and the eligibility of loan amount will purely depend on the value of the gold ornaments that one offers as collateral to the lender. As per RBI’s rule, the threshold limit of Loan to value is 75%* of your gold’s value.
The lender is least worried about the income, standing & repayment capacity of the applicant.
- Loan Tenure:
Personal loans are generally repayable in 1 to 3 years. A few lenders may also grant longer tenure up to five years.
Gold loans on the other hand are offered for a tenure ranging from 30 days to one year. The tenure is extendable on expiry in case interest is served promptly.
- Loan Repayment:
Personal loans are repayable in monthly EMI, which includes the principal and interest amount. There is just one option and the borrower has to follow it.
However, Gold Loan can be repaid in three different ways as explained hereunder;
Bullet repayment (pay the full amount in a lump sum) or,
Repay and service interest only on monthly basis and pay principle as a bullet at the end of the tenure.
- Processing Fees:
In Personal loans, the lender may charge processing fees anything between 0.5% to 2%* of the loan amount.
Whereas in Gold loans the Processing Fee generally varies from 0.1% to 1% which is much lower than that of Personal Loans.
- Credit history:
In personal loans, credit history/ Credit score is very important on the basis of which lender decides the loan eligibility of an individual, whereas in Gold Loans the lender is generally not worried about credit history of the applicant and lenders gives credence to collateral rather than credit score.
- Security & safekeeping of Gold:
The gold ornaments kept in the home are prone to theft and damage. If kept in a bank locker one has to pay rent to the bank. One tends to save this rent upfront after availing Gold Loan against Gold ornaments.
Having understood the comparative analysis between two loan schemes, now it is up to the individual to decide between the two in case the option to choose between the two is there. Personal loans are good for people who need a higher loan amount. Gold loans are good for people who wish to get flexible repayment options and also have a lower credit score.
If you wish to apply for the Gold loan in Delhi, apply here.