A loan is the most convenient and ideal mode of fulfilling the need of cash crunch in times of financial distress. While multiple types of loans can provide funds for every financial need, what is essential is that you don’t get carried away by the easy availability of loans. It is crucial to identify the correct loan product for you. For instance, if you require funds with no availability of any collateral, an unsecured loan like a personal loan may come handy, and a gold loan can be taken to get a quick disbursal of loan and minimum eligibility criteria.
Here is a difference between a gold loan and a personal loan:
What is a gold loan?
A gold loan is a secured loan taken against the security of gold jewellery or ornaments. It can be made by pledging gold in different forms such as coins, bars, jewellery or ornaments. A gold loan is available for a short tenure of 1 day to 36 months.
What is a personal loan?
A personal loan is a secured loan available for salaried and self- employed professionals for up to 5 years. You can take a personal loan to meet personal, and business needs such as a wedding, travel expenses, medical expenses etc.
Personal loan v/s Gold loan
|Point of difference||Personal loan||Gold loan|
|Loan Tenure||Upto 5 years||Upto 3 years|
|Loan Amount||Upto Rs. 75 Lakhs||5 Crores|
|Credit history||Credit score of 700||No credit history required|
|Lowest Interest rate||9.55%||9.10%|
- Loan amount: Generally a gold loan is offered for a higher amount depending on the value of the gold futures against which a gold loan is taken. You can get up to Rs 5 Crores as a gold loan. On the other hand, a personal loan is offered for lesser value as compared to a gold loan. You can get a personal loan between Rs. 9000 to Rs. 75 Lakhs.
- Interest rates: Personal loans are unsecured loans which do not require any collateral; thus, banks provide loans at a higher rate of interest. This may be because there is a higher risk of turning the borrowers to defaulters. Presently, the lowest interest rate for a personal loan stands at 9.55%. Gold loans, on the other hand, are taken against the security of gold. Banks thus charge a lower rate of interest for a gold loan. Presently, the minimum rate of interest for a gold loan is 9.10%.
- Credit history: To take a gold loan, you don’t require any credit history or furnishing of details such as repaying other debts or loans. However, in case of a personal loan, a credit score of 700 or above is required to avail the loan. Banks provide loans based on income level, repayment capacity and debt-income ratio. Thus, a personal loan takes more time for disbursal in terms of fulfilling the eligibility criteria.
- Loan tenure: A gold loan is a short term loan which can be for a day and can range for 1 day to 36 months. On the other hand, the loan tenure of a personal loan is higher and ranges between 12 months to 60 months.
- Repayment options: A gold loan provides more flexible modes of repayment than any other loan. You can repay the gold loan using methods such as:
- Bullet repayment scheme: Using this mode of repayment, you can pay the entire outstanding amount at the end of the maturity period.
- EMI scheme: You can also repay the gold loan by paying the monthly instalments of the loan.
- A gold loan can be repaid by paying the interest of the loan during the tenure of the loan, and another outstanding amount is paid at the end of the maturity period.
- Asset risk: In case of a gold loan, there is a risk of liquidation of a gold asset in case you fail to repay the loan amount. However, there is no such asset risk in a personal loan.
Thus, while a personal loan ultimately depends on the profile of the borrower; income level, repayment capacity and credit history. A gold loan can be taken if you don’t have a good credit score or income level.