People chose gold or personal loans as the best way to deal with liquidity difficulties following the Covid issue. To meet their financial needs, the borrower must evaluate and choose the appropriate borrowing instrument. Finding the best option for you requires a thorough understanding of the benefits and drawbacks of both personal loans and gold. Continue reading to learn more about the qualities, benefits, and drawbacks of a gold loan and personal loan and how to choose the best loan.
Gold loan vs Personal loans
In comparison to other loan choices, the processing time for gold loans is quick because they can be obtained against your pledged gold asset. As a result, the money is quickly deposited into your bank account. The appraisal procedure for a gold loan is purely dependent on the standard of the collateral (gold). The know-your-customer procedure is straightforward in this situation, and credit score is not given much weight.
However, the approval of a personal loan and the distribution of the funds are determined by your credit history and score. Here, the paperwork is significantly different and goes above and beyond what is needed to apply for a gold loan. To process your application for a personal loan, you must submit your ITR forms, pay stubs, and other supporting documentation. Furthermore, it takes additional time to verify the submitted paperwork, and it could take up to seven days for your loan to be disbursed.
A few differences between gold loans and personal loan
Secured and unsecured
A secured loan, a gold loan requires you to pledge gold as security or collateral in order to be approved. The gold that has been pledged may take any shape, including a gold coin or ornament. If you fail to repay the gold loan, the lender will seize the gold you provided as security for the debt. A personal loan, on the other hand, is an unsecured loan for which no collateral or securities are required to be pledged. These loans, also known as signature loans, are made available to you depending on your creditworthiness as well as other factors including your ability to repay the loan and your ability to make consistent payments with your income. A personal loan might be a smart choice if you are not ready to use your gold as loan security or do not have any gold to use as collateral. Due to the fact that many people may not be willing to guarantee priceless gold in bank safes for a long time, a personal loan is much better than a gold loan.
Repayment duration
The term of a gold loan is from three months to three years, whereas the term of a personal loan is one to five years. It is recommended to get a personal loan if you want loans with a longer term. In this manner, you can more carefully plan out your monthly spending. As long as you manage your monthly costs well, taking out a loan with a flexible term will help you keep a strong credit standing.
Interest rates
The interest rate varies from lender to lender, whether it is for a gold loan or a personal loan. The length of the loan is the other factor that has an impact on interest rates. Higher interest rates are the effect of lengthier loan terms. Both gold loans and personal loans can use this factor. A gold loan is considered a secured loan, hence gold loan interest rates are somewhat lower than the interest rate on a personal loan.
Credit score
Therefore, since the lender offers a loan against the value of the gold pledged, there is no requirement for a person to maintain a high credit score.
Repayment modes
Equated Monthly Installments (EMI), which include both the principal and interest components, are used to repay personal loans. Organizations offer a larger selection of repayment options for gold loans. In addition to the standard personal loan EMI repayment schedule, certain NBFCs allow you to only make monthly interest payments, deferring repayment of the principal portion until the loan’s maturity date. There is no need to pay back EMIs while repaying a gold loan using the Bullet method because you can pay back the entire loan amount at the end, including the principal and interest.
Income soundness
If you don’t have a reliable income source or other means of proving your income, choosing a personal loan could be challenging. It could also be quite difficult for independent contractors or individuals with little prior IT experience. Many industry professionals advise you to get a gold loan in these circumstances because of the reduced credit score requirements for these loans.
Conclusion
Due to the fact that the final decision is purely based on the applicant’s credit profile and needs, the borrower must choose between buying gold or taking out a personal loan. People with decent credit who require minor loans but don’t want to put up any collateral might consider personal loans. Gold loans, however, may be more suitable for borrowers who value flexibility in loan terms, repayment schedules, or credit standing. Additionally, it benefits clients with irregular or long cash flow cycles.
