Gold loan vs personal loan: six things to consider when choosing
Gold Loan vs. Personal Loan: Six Things to Consider When Choosing Photo credit: BCCL
New Delhi: For any urgent financial need that helps people meet their needs, personal or gold loans are two convenient borrowing options. A borrower can choose between the two depending on the features that suit him the best.
(1) Duration of occupation
If you are planning to pay off your gold loan within the next year, then the gold loan is the best option, analysts say. But if you plan to pay off the loan over three to five years in installments, then a personal loan is a good option. Typically, gold loans are offered for terms of up to 2 years and after that term you can renew the loan.
In the case of a gold loan, you must keep the gold (in any form, i.e. jewelry, bullion, or coins) as collateral. Banks offer up to 90% of the value of gold in the form of a loan. The higher the loan-to-value ratio, the higher the interest rate. But in the case of a personal loan, you don’t need to give any collateral. The loan amount depends on your income and your repayment capacity. If you have a regular source of income but no gold to keep as collateral, then a personal loan is the only option for you.
(3) Interest rate
As a gold loan is a secured loan, its interest rate is lower than that of a personal loan, which is an unsecured loan. Currently, personal loans are available at interest rates between 10% and 15% depending on your job profile and credit rating. But gold loans can be used at an interest rate of between 7% and 12%. Also, you don’t need to have a regular source of income to qualify for a loan from God. Even housewives, students can avail gold loans.
In the event of a gold loan, you benefit from flexible repayment options. You can either opt for the EMI option, or opt for the repayment in fine in the event of a gold loan. Partial repayment is also possible in the event of a gold loan. But in case of a personal loan, the only repayment option is through EMI. If you want to pre-close your personal loan, banks will charge a pre-close penalty of up to 5% plus GST. However, recently some banks are also offering a partial payment option in personal loans.
(5) Credit score and documentation
To benefit from a personal loan, you must have a CIBIL score greater than 750 (out of 900). Some banks also offer personal loans to people with a CIBIL score between 700 and 750 but they charge significantly higher rates to these customers. But to qualify for a gold loan, you don’t need to have a good credit history. But if you have a good credit history, you can qualify for a gold loan at lower rates.
To qualify for a gold loan, you must have only proof of identity and address, but to qualify for a personal loan, you must submit proof of income as well as identity and business documents. address.