Gold Loan or Personal Loan ? Make a wise decision!

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Gold Loan or Personal Loan?

For Indians, gold is considered to be the most secure asset, as compared to any other form of investment. Gold loans are secured loans, wherein you pledge your gold as collateral in order to get a loan. A money lender is always comfortable lending against a security as compared with a loan application backed by no security.

How much amount do you get in Gold Loan?

The loan application is processed, and the total valuation of the gold is calculated. You can avail a loan ranging from 60-75% of the value of the gold pledged.

How is Gold Loan a better option than Personal Loan?

The following factors contribute towards making Gold Loan a far better option as compared to Personal Loan:

  • Easy and Swift Processing: Gold loan approval and disbursal is fast and easy. In most cases, loan process can be completed in a few hours.
  • No Credit History Required: With gold loans, banks do not care about your credit history, since it is a secured loan. You don’t need to have a good CIBIL or declare existing loans or other debt obligations. It is also a great opportunity to improve your credit history.
  • Low-Interest Rates: The interest rates on gold loans are lower than most other types of loans. If you have ever observed the Gold loan interest rates in market, you would find them ranging between 12-15% per annum whereas the personal loan rates range from 18% to 24%. This is one of the key factors to opt for a gold loan instead of a personal loan.
  • Flexible Repayment: Gold loan offers you several options for repayment which is not offered with other types of loans. The following are three most common repayments options:
    • You can choose to pay the loan off as regular EMIs
    • You can choose to service only the interest during the loan tenure and pay off the rest at the end of the tenure or
    • You can pay the interest and loan amount at the end of the tenure with no payments before that.
  • Zero Pre-payment Penalty:  Generally, you need to repay your loan using a fixed EMI’s spanned over a fixed period of time. And if you pre-pay any amount, banks charge you a pre-payment penalty of about 2% of current outstanding principal amount. However, this is not the case in Gold loan. You can repay any amount and close your loan account anytime.
  • Higher Principal Amount: When you apply for a Personal Loan, the total amount that you are eligible to borrow depends on your monthly salary. But with a Gold Loan, the amount (Loan to Value) can go up to 75 per cent of the collateral. Therefore, with a Gold Loan, you can take any amount as a loan, irrespective of how much you earn, as long as you can provide collateral to match the value.
  • Loan period: Gold loans can be taken for as low as 1 month, which is not the case with Personal Loans. They are a great option for short-term money requirement, or if you have an urgent need to raise funds.
  • Higher Principal Amount: The loan amount is dependent on your salary in case of personal loan and on the value of Gold in case of Gold loan. Hence with a Gold Loan you can take any amount of loan, irrespective of how much you earn, as long as you can provide collateral to match the value.
  • Processing fees: Since personal loans are not backed by collateral, banks need to do a scrutiny of your credit history and income proof documents hence they charge you a processing fee. This fee generally varies from 0.5%- 1% of the principal amount. But in case of gold loans there’s no requirement to submit any income proof as such. Please note, some banks may charge processing fees on Gold Loans as well.
  • Additional Benefits: Some lenders provide gold loan borrowers unique benefits such as free bank lockers or discount on various services offered by the lender. If you are running a business, you can consider taking an overdraft facility against the gold ornaments deposited with the bank. This overdraft facility against gold can be a very good alternative to 'creation of an emergency fund'.




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