Personal Loan Or Gold Loan: Which One Should I Choose?

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Both gold loans and personal loans are instant loans that can help you access cash quickly in times of emergency. The loan process is quick and puts the cash in your hands instantly. They also come with very minimal paperwork or documentation. 

These days, personal loans are accessible online too, saving you a lot of time. Gold loans too have become quite popular of late. There are a number of gold loan providers who offer you a very high loan amount per gram of gold with low interest rates. 

How do you choose the best one to suit your needs? How to compare the merits of personal loans and gold loans? Continue reading to help you decide the right loan that best matches your needs. 

Gold Vs Personal Loans: A Quick Comparison 

Personal LoanGold Loan
Loan AmountRs.50,000 – Rs.50 lakhsBased on the market value of your gold. You get up to 75% of the value of the pledged gold. 
Interest Rate10% – 18% 9% – 14%
Processing Charges1%– 3% of the loan amountUp to 2%
Approval Time3 – 7 business daysInstant disbursal
Repayment Tenure12 months – 60 months1 year – 3 years
Collateral or SecurityNILGold ornaments and any other gold articles

Personal Loan – Features, Benefits and Drawbacks

Features

  • A personal loan is an unsecured loan offered by banks and NBFCs to eligible applicants. 
  • A personal loan can be utilized for any end use without any restrictions. 
  • The loan is approved based on your income, job type and credit score. 
  • One can get up to 30 times of their gross monthly income as a personal loan. 

Benefits

  • Banks offer a convenient application process; online application, minimal documentation and instant disbursal.
  • You get online access to your account so that you can manage your account from the comfort of your home; you can pay your EMIs, update communication details, change the payment method and more with a single click.
  • You get up to 60 months to repay the loan.
  • Loans starting from Rs.50,000 up to Rs.50 lakhs.
  • Interest rates range from 10% to 15%.

Drawbacks

  • You need to have a good credit score, something above 750, to get good interest rates
  • Low credit score can end up in higher interest rates and unfavorable loan terms
  • Processing time is anywhere between 2-7 business days, sometimes even longer
  • Since it is an unsecured loan, the bank will take time to closely scrutinize your documents and other eligibility criteria to approve the loan, which results in a longer waiting period
  • If you don’t satisfy the eligibility conditions, your loan might get rejected
  • You need to have a stable job history and income proof to get a personal loan
  • You have to pay EMI every month, throughout the tenure of the loan, which comprises of the interest as well as the principal component

Gold Loan – Features, Benefits & Drawbacks

Features

  • Gold loans are secured loans issued against the gold ornaments you pledge
  • The loan amount is based on the purity of the gold and its market price on that particular day
  • Gold loans are instant; the banker evaluates your gold and disburses the amount to your account
  • Since the gold serves as collateral, you don’t have to provide any additional security or collateral
  • Gold loans are not linked to your income, age or credit score; it is just the gold that matters

Benefits

  • You can use the gold loan amount for any end-use, there are no restrictions
  • Gold loans do not have any eligibility criteria related to your age, income or job type. The loan is purely based on the gold you are going to pledge. 
  • These are short term loans with repayment tenures of 1 to 3 years, which can be extended further
  • You have the option to just pay the interest amount during the loan tenure and pay the principal in full when you want to close down the loan
  • Interest rates range between 9% – 12%. They are lower than personal loans since these are secured loans
  • You can pay the interest component during the loan term and you can extend the loan for another year if you are unable to pay the principal at that point of time. 

Drawbacks

  • Since the loan amount is based on the gold you pledge, it might be difficult if you don’t have enough gold to equal the loan amount
  • Gold price is volatile. If the market price of gold is low, your loan amount will also be low
  • Also, RBI has stipulated that the gold loan amount should be not more than 90% of the gold value. 

Which is the better option for me?

If you are looking for a higher loan amount and you have a stellar credit history, then personal loans are better

If you are looking for immediate loan disbursal or have low credit scores, then gold loan is best for you

Personal Loan gives you a longer repayment tenure while gold loans allow you to just pay the interest during the loan term. The choice ultimately comes to your requirement. Check out your requirements and see which loan will satisfy your needs better. 

Compare the interest rate, processing fees, disbursement time, and other factors before you choose one. Irrespective of the loan option you choose, make sure to assess your repayment and EMI capabilities so that your credit score is not negatively impacted in the future.