Introduction
Financial issues can occur at any moment in life. It could be a sudden family event or unpaid medical expenses. Or a sudden need to pay business costs could also be the cause. In such circumstances, you may wonder which loan serves the best value. Is it a gold loan or a personal loan?
To help you understand the difference between a personal loan vs gold loan, this post narrates the details. Some loans are easy to get, while others offer better rates. On the other hand, some need collateral, while others do not.
Read on and find out the comparison between a gold loan vs personal loan India for your needs. Start by looking at what each loan means and how they work.
Personal Loan vs Gold Loan
Getting a loan is a common need. A personal loan vs gold loan depends on your need, how fast you want the money, and if you have gold to pledge.
If you do not have gold, you might go for a personal loan. If you want quick money without sharing income proof, a gold loan may help.
Let's compare gold loan vs personal loan side by side. This will help you choose what works better for you based on features and charges.
Parameters | Gold Loan | Personal Loan |
Security | Secured loans & need gold jewellery or coins as collateral. | Unsecured loans & do not need any assets. |
Tenure | Come with a short repayment period. | The repayment period can go up to 7 years, based on lender terms. |
Disbursal Time | Approved & disbursed often within a few hours. | Approval takes longer, from a few hours to even 7 days based on checks. |
Rate of Interest | Since it's a secured loan, the gold loan interest rate vs personal loan interest rate is lower. | Interest is higher as no security is given. It depends on credit score and profile. |
Loan Amount | The loan amount depends on the market value and purity of the gold you provide. | The amount is decided by your income, credit score, loan repayment record, etc. |
Eligibility | You must own the gold you are using to get the loan. No income proof needed. | You must meet lender terms like age, income level, etc. |
Repayment Options | You can pay only the interest monthly and clear the rest at the end or pay in full. | You must pay the loan back in fixed EMIs over the repayment period. |
Processing Fees | Gold loans may have a fee of up to 2% of the total loan amount. | Processing charges can be between 1% and 3% of the loan amount. |
Foreclosure Charges | Some lenders let you close the loan early without charges. Others may take a fee. | Many lenders charge 3% - 6% of the balance if you close the loan early. |
On Defaulting | The lender can sell your gold to get their money back if you do not repay. | The lender may take legal action to recover the dues if you fail to pay. |
Choosing between a personal loan vs gold loan comes down to your need & income, or whether you can pledge gold. Always compare first before you apply.
What is a Gold Loan?
A gold loan is money you get by pledging your gold jewellery or coins with a lender. You hand over your gold, and the lender gives you up to 75%-80% of its value. The value is based on the gold's weight and purity. The loan is given after checking current market prices. The lender checks how much your gold is worth and gives you money using something called a Loan to Value (LTV) ratio.
You repay the loan in simple steps. You can choose monthly interest or pay it all at once. Once the full loan is cleared, the lender gives your gold back. Some people ask if a gold loan is a secured or unsecured loan. Since gold is used as a guarantee, it is a secured loan.
You don't get tax benefits on gold loans unless you use the money for a house. You can claim benefits under Section 80C or Section 24 of the Income Tax Act if you use the loan to fix or buy a house. You may get up to ₹1.5 lakhs if it is for repairs. You can also receive ₹2 lakhs when it is buying or building a property.
Advantages of Gold Loan
1. You can use the gold loan for anything without restrictions, like a car or home loan.
2. Gold loans have lower interest rates.
3. Fast approval & same-day disbursal without delays.
4. No need for a high credit score or credit history.
Disadvantages of Gold Loan
1. The lender can legally sell your gold to recover the unpaid loan amount when you miss payments.
2. Different lenders offer loan amounts depending on gold value (usually capped at 75% to 80% Loan to Value.
What is a Personal Loan?
A personal loan is an unsecured loan. You do not need to pledge any collateral or assets. Lenders check a few parameters before deciding whether you qualify. There's no security so interest rates are higher than the gold loans.
You may use this loan for anything you need such as an education loan, travel loan, medical bills, rent, etc. Personal loans, unlike home loans, offer you more freedom. Here are the key points to note:
1. Personal loans give flexibility.
2. Interest rates are higher than gold loans as no collateral is needed.
3. Repay the loan in EMIs.
4. Loan terms usually range from 3-15 months or more.
5. Lenders check your credit score as well as income before approval.
Advantages of Personal Loan
1. You can get a personal loan without assets.
2. Personal loans have lower interest rates than credit cards.
3. You can combine small high interest debts into one personal loan with easy EMIs & save on monthly payments.
4. A personal loan (when paid on time) can improve your credit score.
Disadvantages of Personal Loan
1. Personal loans often come with additional fees like processing charges or late payment fees. They may increase your borrowing amount in total. They also make the loan more expensive than you first expected.
2. Getting a personal loan depends a lot on your credit score. Suppose your score is low. The lenders in that case may reject your application. They may offer a higher interest rate. Your repayment history or credit card use may impact the lender's decision alongside loan terms.
3. Missing one EMI payment may result in trouble. It may result in penalties or hurt your credit score. At times, it can also lower your chances of getting future loans. Repeated missed payments can also result in default status or legal issues.
A personal loan vs gold loan choice depends on your personal needs. A gold loan is a safer bet if you want fast approval and have gold. Personal loans are better if you have a decent credit score.
Also read: Things to Consider Before Taking Personal Loan
How to Choose Between Personal Loan and Gold Loan?
Between a personal loan vs gold loan, choosing the one depends on what you need. Do you own gold & need cash fast without sharing income proof? A gold loan is easier. But a personal loan is better if you don't have gold and want a longer repayment time. Always check interest rates or fees before you decide. You must also think about how soon you can repay & what happens if you miss payments.
When to Choose Personal Loan and Gold Loan?
Knowing when to choose a personal loan vs gold loan helps you borrow smartly.
Choose a Personal Loan if:
1. You need urgent funds and want the loan amount transferred quickly without visiting a branch.
2. You don't have gold but still need a loan with no or low credit score issues.
3. You have short-term needs and prefer an easy online application and fixed monthly repayments.
4. You need a high loan amount and meet the income or employment conditions set by the lender.
5. You want to borrow without risking your gold or any other valuable item as security.
Choose a Gold Loan if:
1. You don't have collateral like property but you have gold jewellery to pledge for a secured loan.
2. You want a longer repayment tenure with flexible interest payment options during the loan period.
3. You face short-term needs and need the loan disbursed fast with minimal paperwork or checks.
4. You have a low credit score and need a loan without income proof or credit report approval.
Conclusion
Choosing between a personal loan vs gold loan depends on your need, credit profile, and available assets. If you have gold and want fast money without much paperwork, gold loans work well. If you want a longer repayment time and don't have gold, personal loans are better. Compare a gold loan vs personal loan which is better, depending on loan amount & interest rates.
Frequently Asked Questions (FAQs)
Q.1. Which loan is better – gold loan or personal loan?
A personal loan vs gold loan choice depends on your needs. Gold loans offer lower interest rates and faster approval since gold is used as security. Personal loans take more time and need credit checks but give longer repayment terms. Choose gold loans for short-term needs and personal loans for flexible usage.
Q.2. Who is a gold loan best suited for?
Gold loans are best for people with gold jewellery and low or no credit history. They suit those who need fast money, don't want income proof, and prefer short-term loans. Borrowers without a regular income but with gold to pledge benefit most from gold loans due to easier approval.
Q.3. Can a gold loan impact your chances of getting a personal loan?
A gold loan would not hurt your score if paid on time. But it may impact your credit report & lower your chances of getting a personal loan later if you delay or default. Lenders always check repayment history while approving loans. This may include your record with any existing gold loan.
Q.4. Do gold loans or personal loans have higher interest rates?
Gold loans have lower interest rates as they are secured. Personal loans are unsecured. Lenders charge higher rates to cover their risk when it comes to personal loans. Various aspects like income or credit score may impact the final rate offered in both types of loans.
Q.5. When is the right time to take a personal loan?
An instant personal loan is for those situations when you need money immediately & have no gold or other security to offer. It's useful for planned events like weddings, travel, or home renovation. If you have a steady job and good credit score, you're more likely to get better terms and faster approval.
Q.6. Is it allowed to use a gold loan for any type of expense?
Yes, gold loans have no strict rules on usage. You can use the loan amount for medical bills, school fees, travel, or business needs. Lenders do not check how the money is spent, which makes it flexible. Just make sure you repay on time to avoid losing your gold.
