Loans are an easy way to fulfill financial liabilities such as your child’s education, their marriage, your much-anticipated vacation and a lot more. However, the banks have segregated the concept of loaning into various types. There are personal loans that you can use to fulfill your personal requirements or monitory contingencies. Moving on to the next loan categories, there are car loans and a home loan that allow one to buy a car and a home respectively without worrying about the expense. Gold loan is yet another significant concept that allows you to get instant money in exchange for your precious gold.
If you are planning to get a loan to fulfill your personal liabilities but are perplexed about which loan scheme to choose, it is advised to choose either a gold loan or a personal Loan. Both can be used to fulfill urgent financial needs but there are certain pros and cons of both that you need to know before filling up the loan application.
What is a personal loan?
A personal loan is one of many types of loans that can be borrowed from banks. It can be used to pay the consolidated debt, house renovation or any other unexpected expenditure. Personal loans are more difficult to get and have strict eligible requirements. To get a personal loan, you must know that:-
- Personal loan is unsecured loans
- A personal loan has fixed loan amount. The better your credit score and higher your income, the more money you can borrow
- The personal loan usually has fixed interest rates based on your credit score. The better your credit score, the lesser interest rate you’ll have to pay and vice versa
- A personal loan may affect your credit score. Therefore paying personal loan EMIs on time is the best way to keep your credit score unaffected
What is Gold loan?
As you might understand from the name, Gold loan is given against the gold. Many private and national banks, as well as other lending firms, offer this loan at attractively low interest rates. Many people get this loan for short term requirements to meet the needs of their children’s education, business expansion, child’s marriage and other emergency expenditures. Popular options include HDFC, Manappuram, Muthoot and SBI Gold Loan. Some key features of Gold loan include:-
- The gold loan does not require any other collateral except Gold. This makes easier for self-employed and unemployed people to get this loan.
- The gold loan involves no/less paperwork. Just an ID proof along with address proof is enough to get this loan.
- The gold loan has lower rate of interest (generally 12-16% per annum). It is far lesser than a personal loan that charges 15-26% interest rate per annum.
- The borrower gets the option of only paying interest during the loan tenure and at the end of the loan tenure, you have the option of paying off the remaining loan amount due in a single shot.
- Gold loan processing time is much shorter than other borrowing options.
- In rural areas Agricultural loan against gold is also available for agriculturist at very low rate of interest (7%-8%). However one needs to provide a proof of agricultural document to get the loan.
Gold loan vs. personal loan: Which is better?
Ideally, Gold loan is better than the personal loan as it offers faster processing, minimal documentation, zero pre-payment fees, and no EMI option. So now if you have a good amount of gold hoarded in your locker and you have immediate requirement of cash for your personal needs, it is good to make use of the gold instead of choosing personal loan option on higher interest rates.