Gold Loan Vs Personal Loan

We (Indians) have this special attachment towards Gold. Sometimes this attachment goes beyond the obvious intentions of gaining from any rally in gold prices. For many of us, Gold is still a safe investment that gives peace of mind. It is also useful when your other sources of income won’t perform well. Recently Gold prices have fallen. It resulted as increased interest among investors to accumulate this alluring asset. Some wait for further fall. And then there are experts which are predicting the end of Bull Run in gold prices. Amidst such mixed signals on gold prices there is a lucrative opportunity of availing a loan against gold.

In reality, there are very limited financing options available that offer flexibility of Personal loan in case of emergency needs. One of them is Gold Loan. Gold loans are secured loans. It is emerging as an alternative to personal loans due to the dual benefits of minimal documentation and lightning fast disbursal. Both these loans have their advantages and disadvantages and it could either be a beneficial option or can cause financial trouble to an individual, which depends on the numerous factors. Now take a quick look at these two types of loans to understand what would be the better option for you.

Gold Loan

Gold Loan is a secured loan that is offered to people who own physical gold in the form of ornaments or coins. It is given by the bank or private lenders by taking the gold as collateral. The quantity of gold and its current value decides how much amount you can get from Gold Loan. It can be used for any purpose like to invest in your business, for sudden medical emergencies, marriage or any unexpected expenses that you are unprepared of otherwise. Banks or NBFCs doesn’t look for the profession of the Gold owner before giving them Gold Loan. It’s because the banker is always comfortable lending against a security compared with a loan application backed by no security. Gold Loan is a great choice for short term money requirements in case you need really quick money.

Benefits of Gold Loans include:

  1. No Credit History Required – Banks don’t worry about the credit history of Gold Loan Applicant. The importance of CIBIL score and declaration of any existing loan is also not required with Gold Loan. On the other hand, repaying gold Loan on time will improve your credit history for sure.
  2. Simple and Easy Processing – Gold Loan involve fastest loan approval process. Only your basic documents are required and there is no complexity like other loan programs. Average time taken in the approval of Gold Loan is approximately in few hours.
  3. Low-Interest Rates – As compared to other loans in the market, Gold Loans comes with low-interest rates. It means you will repay less money with a Gold Loan as compared to other loans with higher interest rates.
  4. Flexible Repayment – Gold loan gives you flexibility in term of repayment. You can either choose to pay the loan by regular EMIs or choose to service only the interest during loan tenure and pay off the rest amount at the end of the tenure or can pay the interest and loan amount at the end of the tenure with no payment done earlier.
  5. No Pre-Payment Penalty – Institutions offering Gold Loan do not charge any pre-payment with the foreclosure of a gold loan.

Some lenders offer additional benefits with their Gold Loan like free bank lockers or discount on several other services offered by them.

Disadvantages of Gold Loan include:

  1. Short Tenure – Most of the lenders dealing in Gold loan usually offer this for a time period of less than 3 years that is considered as short term loan. This results in high EMI payments.
  2. High margin – Bank offers up to 75% of the value of your Gold. It means the remaining 25% value goes towards bank’s margin and cannot be monetized.
  3. Loss of Asset – Gold loan is a secured loan and your asset is always at risk in case of the failure of loan repayment on time.

Banks do not ask for a guarantor while disbursing a Gold Loan. There are some banks who do not charges in an event of pre-payment and in few cases it goes around 1%. You can avail all the facilities offered against your gold loan. However the gold loan comes with shorter period of time and therefore if you are capable to repay the loan in 12 months then you can go for a Gold Loan.

Where to get a Gold Loan?

There are both Banks and NBFCs dealing in Gold Loan. Some of them are:

  1. Manappuram Gold Loan (visit http://www.manappuram.com/gold-loan.html)
  2. Muthoot Finance (Visit http://www.muthootfinance.com/services/gold-loan)
  3. ICICI Bank (Visit https://www.icicibank.com/Personal-Banking/loans/gold-loan/index.page)
  4. Axis Bank (Visit https://www.axisbank.com/retail/loans/gold-loan)
  5. HDFC Bank (Visit https://www.hdfcbank.com/personal/products/loans/gold-loan)
  6. SBI (Visit https://www.sbi.co.in/portal/web/personal-banking/gold-loans)
  7. Kotak Mahindra Bank (Visit http://www.kotak.com/personal-banking/loans/gold-loans.html)

Personal Loan

Personal loan is an unsecured loan program that is ideal for fulfilling short term financial responsibility. It is one of the most popular type of loan programs that people choose in any urgent financial requirement especially in case of emergencies or unplanned big ticket expenses. Personal loans tenure starts from 1 year to 5 years and the Rate of interest against this loan is usually somewhere from 12% to 22% depending on the applicant’s credit profile. To apply for personal loan, Banks or NBFCs check your income proof and other documents and this complete loan process takes up to 5 days before disbursal of the loan. You should also remember that the processing fee is also charged from 1 to 3 percent on your personal loan. Now let’s discuss about Pros and Cons of Personal Loan in detail.

Pros of Personal Loan include:

  1. No Collateral – One of the greatest advantages of Personal Loan is that a borrower does not have to keep any kind of asset like jewelry, gold, property, life insurance, fix deposits etc as a collateral to get a Personal Loan. It makes personal loan a preffered choice as compared to other financial options like LAP or Gold Loan.
  2. Multi Purpose Usage – One can get Personal loan and use it in anything like spend it on wedding, shopping, home renovation, down payment of some product, holidays or anything where you believe you need sufficient money. Using the money in any speculative or illegal activity is prohibited.
  3. Less Paperwork – Online Personal Loans involve less paperwork so that the complete loan process goes smoother. Only few required documents including your basic KYC information, income proof is required to accept your loan approval.
  4. Easy and Fast Disbursal – The normal time to disburse loan amount is approx 48 hrs after the loan is approved from the bank.
  5. Fix EMI – Bank will give you a repayment schedule that clarifies where it is clearly mentioned that every month you have to pay a fixed amount as an EMI. Nothing else to be pay apart from this as EMI amount include Principal amount plus interest amount. It’s a good thing as now a borrower knows the exact loan amount that he/she has to pay throughout the loan tenure.

Also, there are few banks who comes with paperless personal loans that involve minimal documentation and the fund is provided to you in minutes after the application. So it makes personal loan one of the desired financial product in market.

Disadvantages of Personal Loan include:

  1. Credit History & Eligibility Criteria – Bank check your past credit records by checking your credit history. Next comes eligibility criteria and not everyone fulfills it as it has complexities that don’t allow everyone to avail a personal loan.
  2. High Interest Rates – Personal loan comes with slightly high interest rates due to its unsecured nature as it is more risky for a bank to provide money to a person without taking any collateral. So till the time you repay your personal loan, you also pay a good amount of interest on your loan amount to the bank.
  3. Prepayment / Foreclosure Penalties – As a general most of the Personal Loan providing banks do not allow their customers to do prepayments before at least 1 year. There is also a prepayment penalty or foreclosure penalty in case the borrower repay the loan amount before the completion of loan tenure.

Where to get a Personal Loan?

There are both Banks and NBFCs dealing in Personal Loan. Some of them are:

After going through all these facts, As you can see, both the loans have their different sets of characteristics. Both of these products are good source of funds. Although with the Gold Loan, you must have Gold to get loan against it. On the other side you need nothing but a good credit history and stable source of income to get Personal Loans from Bank or NBFC. For any queries, feel free to contact us.

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