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When it comes to getting some quick money for a personal requirement, people these days usually approach banks with a request for a personal loan. This surely saves the day for most. Over the years banks have refurbished the age old practice of pawning jewelry with the local money lender and come up with the idea of gold loans.
In the present scenario, gold loans have also become quite popular. However, there is an ongoing debate in the minds of most customers as to which is the better option.
Let us go ahead and decode the two loans to find the answer to this query.
A personal loan is offered by a bank based on your income eligibility. This can be availed only by self employed and salaried people.
The bank does not ask for any collaterals while issuing a personal loan
A personal loan can come in handy for a variety of requirements like wedding, meeting the medical expenses, vacations etc
Unlike the other loans, paperwork for personal loans is minimal and thus takes very less time
Personal loans are quickly approved and disbursed.
Before offering a personal loan, banks conduct a check of the credit history as well the income eligibility
The interest rates on personal loans are quite high
Banks do not offer any options for foreclosing or prepaying the personal loans
A bank or a financial institution offers a gold loan with gold as the collateral. The amount offered is based on the value of the gold is brought in by the customer and there is no relevance of the income eligibility in this case.
The processing and disbursement of gold loans is quite quick. In fact, many a times gold loan is disbursed within a matter of a few hours
When it comes to securing the gold loan, there is no relevance of the credit score or the income eligibility of the customer
The interest rates on gold loans is quite low when compared to the other kinds of loans offered by banks and financial institutions
The repayment of the loan can be done in various ways like paying as installments or settling the whole amount along with the interest at the end of the tenure
Banks and financial institutions allow the prepayment of gold loans. What’s more they do not charge any prepayment cost
Additional benefits are offered to the customers availing gold loan like discount on various other services, free locker etc
The gold that is offered as a collateral is always at risk as the bank would liquidate it in case of non-repayment at the end of the tenure
The banks offering the gold loan usually take up a huge margin of the total value of the gold
The tenure for gold loans is usually less than 3 years
Gold Loans Vs Personal Loans: The Hidden Costs
Rate of Interest: Since the customer offers gold as collateral for securing a gold loan, the rate of interest on these loans is rather low. However, when it comes to personal loans, the risk factor is quite high for the banks. Thus, they charge a higher rate of interest on the amount offered.
Processing Fee: The processing fee for gold loans is quite low what with there being no need for verification and background check. On the other hand, since personal loans require background verification, the processing fee for these loans is higher.
The Conclusion: Which is the Better Option?
Personal loans and gold loans have their own pros and cons. With the unique features that make them a perfect pick on some occasions and not a good choice at others, it seems that the choice should be based on the requirements of the customer. According to experts both the loans are equally good options provided the customers analyze all the various parameters before applying for the loan. However, if your decision is completely based on the financial and cost aspect, then gold loans definitely seem to have an upper hand over personal loans.