GOLD LOAN VS. PERSONAL LOAN - WHICH IS BETTER AND WHY?

An individual may seek financial assistance now and then, and often they may need money on short notice. There can be many reasons for that. For consideration, they may require funds to meet the needs of a recently established business, repay borrowed money, pay fees of school or college, renovate the property, fulfill travel goals, and meet expenses of medical emergencies, among several others.

Table of Content:

• Comparing Loan Choices: Gold Loans vs. Personal Loans
• Understanding the Gold Loan
• Understanding the Personal Loan
• Gold Loans Vs Personal Loans: Which is Right for You?
• Conclusion

Comparing Loan Choices: Gold Loans vs. Personal Loans

When it comes to the options available to people to overcome their liquidity shortages, especially arising out of emergencies or loss of income, gold loans and personal loans are extremely popular choices. However, to be able to identify which option can best cater to the needs, it is important to learn about them in-depth.

Now before digging into the concepts of gold loans and personal loans, on the basis of different criteria such as personal loan interest rates and gold loan rates, let us understand the basic difference first.

Understanding the Gold Loan

In simple terms, gold loans are loans against your gold. They are secured loans in which the borrower pledges their gold assets and gets a percentage of the gold's value as the loan amount. In general, the loan to value (LTV) ratio for gold loans is up to 75% and may vary from one lender to another. Once the loan amount is sanctioned and disbursed, the borrower pays off the loan as per the agreed terms. The lender returns the gold taken as collateral to the borrower once the person repays the entire loan amount.

In the case of gold loans, since the borrower is already giving their gold assets as security, the credit score is not a criterion to decide its approval. To avail of a gold loan, the person needs to take their gold assets to the bank or NBFC for the assessment of their value. The tenure of gold loans is usually between 7 days to 36 months.

Advantages of Gold Loan

• Higher Loan Amount: Since the loan amount completely depends on the weight and purity of pledged ornaments, you can easily apply for a higher loan amount.
• Better Interest Rates: As compared to other popular financing options, gold loans are available at a lower rate of interest.
• Flexible Eligibility Criteria: Gold loans are secured where pledged ornaments work as collateral. So, the borrower doesn't need a credit history to obtain a loan.
• No Prepayment Penalty: If you want to repay the loan before the tenure comes to an end, there are no foreclosure charges applicable for the same.

Disadvantages of Gold Loan

• Shorter Loan Tenure: The tenure of a gold loan is usually shorter as compared to other types of loans. This is why these loans are only suitable for a temporary financial crisis.
• Limit on Loan Amount: You can only avail a loan for a certain percentage of the total value of your ornaments. This percentage is called the LTV ratio.

Understanding the Personal Loan

Personal loans are unsecured loans which are also known as signature loans and don't require the borrower to provide any collateral to the lender. Unlike gold loans, personal loans are not approved immediately as banks and NBFCs, processing loan applications, take time to check out the borrower's credit history before sanctioning the loan. This way, lenders get a clear idea of the borrower's credit payment history.

So, credit history plays a critical role in the approval of the loan application. Other than the credit score and history, the amount required by the borrower is also evaluated by banks and NBFCs on the basis of their monthly income. To avail of a personal loan, the person does not require to visit any bank or NBFC as they can now easily apply for it online. The tenure of personal loans is usually between 12 months to 60 months.

Advantages of Personal Loan

• Flexible Fund Usage: The amount obtained from a personal loan can be used for a variety of purposes. Similar to gold loans, personal loans also offer complete flexibility in this aspect.
• Quick Disbursal: The time required for personal loan disbursal is very less. Since these loans can be acquired very quickly, they are a suitable option to handle any kind of financial emergency.

Disadvantages of Personal Loan

• Higher Interest Rate: Since personal loans don't require any kind of collateral, they often come at a higher interest rate.
• Credit History Required: In personal loans, lending institutions check the borrower's credit history to check his/her creditworthiness. An applicant's credit score can also have a major impact on the loan amount and the applicable rate of interest.

Gold Loans Vs Personal Loans: Which is Right for You?

Suggested Read: Finding The Best Gold Loan Interest Rates In 2024

6 Key Points To Understand About Gold Loan Interest Rates

Conclusion

It all comes down to the borrower's needs and preferences. If the person needs money for a short duration that ranges between a few days to months, then a gold loan is the way to go as it comparatively has lower interest rates. However, if the person needs money for a year or more, then a personal loan is the right choice.

Muthoot Finance offers gold loans and personal loans with easy terms and conditions. Individuals looking for gold loans can check out Muthoot Finance's gold loan per gram rate and schemes on its website. Besides, Muthoot Finance has the best offers for personal loans as well. Since individuals can apply for a personal loan online, the process becomes simple, easy, and quick.

• Internal Linking:

Muthoot Finance offers gold loans and personal loans with easy terms and conditions. Individuals looking for gold loans can check out Muthoot Finance's gold loan per gram rate and schemes on its website. Besides, Muthoot Finance has the best offers for personal loans as well. Since individuals can apply for a personal loan online, the process becomes simple, easy, and quick.