A personal loan is an unsecured form of loan that an individual can borrow from a bank or a financial institution when in need of financial help. The lender verifies the loan application and approves the loan amount. The amount then gets disbursed in the bank account. After receiving the loan amount, the borrower needs to repay the loan in EMIs over the loan repayment period. The loan amount, which is availed by the borrower, is based on various factors.
Gold can come in handy during a crisis. Several banking and non-banking financial institutions provide a gold loan. Loan against gold is a secured loan where the borrower pledges his gold articles as collateral with the loan provider company. The loan provider institute, in turn, gives a loan amount, which is equivalent to the market value of gold provided by the customer. A gold loan is not restricted to be used for a particular purpose. The loan amount that can be availed by the borrower is based on the market value of the gold up to 80%. The gold loan has lower interest rates than a personal loan.
A face-off between gold loan and personal loan
Gold loans are called secured loans as they are protected by an asset that acts as collateral. The lender holds the collateral until the loan is repaid. The cons of gold loan are that if a borrower is unable to pay off the loan, then the lender will use the pledged collateral to recover the outstanding amount.
A personal loan does not provide any collateral and is known as unsecured loan amounts. The lender does not have any belongings of the borrower to seize or take ownership of if the borrower is unable to pay the outstanding loan. Instead, penalties, fees, and interest charges start building on the defaulter’s account.
To avail, any loan one must accomplish the eligibility criteria for the desired type of loan. For gold loans, lenders do not fuss about credit score, profession, etc.
Eligibility criteria for availing a gold loan are:
- A person should be 21 years and above to apply for a gold loan.
- An individual who is willing to pledge their gold articles as security can apply for the loan.
- Lenders require gold ornaments of 18 carats and above to pledged as security.
Contrarily, in the personal loan, these things matter. The eligibility criteria for a personal loan are more stringent. Borrowing a loan depends on the host of factors such as:
- If a customer is applying for a personal loan, the lender expects that the borrower should have at least 15 years or above the life of employment.
- The monthly income and expenses of the customer are taken into consideration.
- The bank will take into consideration whether the borrower’s self-employed profession or a salaried individual.
- Regarding the borrower being salaried class or self-employed, work experience is taken into consideration.
- An important factor, a credit score is taken into consideration before providing the loan.
Rate of Interest
Loan against gold is offered with a fixed and a lower interest rate, whereas a personal loan has a higher interest rate. The interest rates on personal loans are not standardized. It varies from bank to bank.
Loan processing time
When in a sudden crisis of cash, gold loans become the saviour for many. The eligibility criteria, documentation are all done in the nick of time. The gold loan processing is fast. In case of a personal loan, it takes a longer time to process than a gold loan. Sometimes the personal loan takes a week, whereas the gold loan can be availed on the spot.
There is no minimum tenure for repayment of a gold loan. The maximum period of repayment is 36 months/3 years. The minimum repayment period for a personal loan is 1year/12 months, and the maximum repayment period is 5years/60 months.
A gold loan requires minimal documentation like identity proof, address proof, and two passport photographs. A personal loan requires documents such as identity proof, address proof, bank statement of the previous three months, latest salary slip/salary certificate.
Also, within the boundaries of secured loans, a loan against gold has its advantages. Compared to loans against security, one borrower gets a higher amount of credit when gold is kept as collateral.