Borrowing may look like an easy task but making the right decision based on the options available is crucial when you have a specific financial need. With numerous lending options available in the market, selecting the right one can be overwhelming.
If you need a small amount of quick cash, two popular choices are gold loans and personal loans. Each has its own advantages and drawbacks, depending on factors like interest rates, processing time, and repayment terms. Let’s compare both to help you make an informed decision.
What is a Gold Loan?
A gold loan is a secured loan where you pledge your gold jewellery, coins, or ornaments as collateral. The lender evaluates the gold’s purity and weight, then offers a loan based on a percentage of its current market value. Most banks and NBFCs (Non-Banking Financial Companies) offer gold loans at a loan-to-value (LTV) ratio of up to 75% as per RBI guidelines.
Adhil Shetty, CEO of Bankbazaar.com, says, “Gold loans are popular because they are processed quickly, require minimal documentation, and don’t depend on your credit score. If you fail to repay, the lender has the right to auction the gold to recover the loan amount.”
Also Read: Retirement Planning: Best Govt schemes for a worry-free retirement in India
What is a Personal Loan?
A personal loan is an unsecured loan, meaning you don’t need to provide any collateral. Lenders assess your credit score, income, job stability, and repayment capacity before approving the loan. Personal loans are usually available for amounts between Rs 10,000 and Rs 40 lakh. Since they are unsecured, interest rates are higher compared to secured loans. The approval process can take longer because lenders evaluate your financial background thoroughly.
Interest Rates and Charges
Gold loans come with lower interest rates than those of personal loans since they are secured. Interest rates for gold loans range between 7% and 15% per annum, depending on the lender and gold quality. Some lenders charge minimal or no processing fees. Personal loans, being unsecured, attract higher interest rates, usually between 10% and 24% per annum. Processing fees for personal loans are also higher, often between 1% and 3% of the loan amount. Therefore, gold loans are more affordable when you need a smaller loan for a short duration.
» Read More
