In gold loans, one needs to pledge the gold articles like gold jewelry, coins, and bars to the lender to get the loan amount against it. This way the gold loans are backed up by the gold articles as collateral with the lender. If the borrower defaults, he recovers the amount with those gold articles. The value of the loan amount depends upon the value of gold in the present market and the purity of gold which is evaluated by the lender first. People have become familiar with the procedure of Indian Overseas Bank Gold Loan.
In the case of personal loans, one does not need to pledge any collateral with the lender as it is an unsecured loan. But the lenders do check the CIBIL score of the borrower and also demand the payslips from the borrower to ensure his repayment capacity.
Loan product suits you best?
One can decide on this by following the below-mentioned parameters:
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Availability of Security: If the borrower has sufficient security to pledge against the loan then he /can opt for a gold loan as it will help him get a loan at a low-interest rate. On the other hand, if he does not have enough security then he/she can go for a personal loan.
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Loan requirement: The loan requirement should be checked. If the loan amount required is of a big number and if that exceeds the value of the security then the borrower cannot go for a gold loan. In that case, he/she should apply for a personal loan.
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Credit Score: If the borrower has a poor credit score then he cannot be eligible for a personal loan as in personal loan, credit score plays a vital role. Also if one becomes nearly eligible then the interest rates will be much higher. In this case, the borrower should apply for a gold loan if he has a good holding of gold articles.
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Income stability: Personal loan documentation requires payslips to ensure that the borrower has regular income stability and will be able to repay the loan. If the borrower does not have security in terms of regular income then he might have trouble getting a personal loan. In such a scenario, the borrower can apply for a gold loan as the lender possesses the pledged gold articles and does not worry about the default by the borrower.
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Processing time: It depends on the need of the borrower i.e. how urgently does he need the loan amount. If he requires the loan amount within 2 days of the application then he should apply for a gold loan as personal loans take 3-7 days to process loans to verify the documentation.
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Interest rate: Gold loans being the secured loans carry lower interest rates when compared to personal loans. The interest rates on gold loans start with as low as 9%. Whereas interest rates on personal loans range between 10.45%-26%.
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Loan tenure: This time period in which the borrower can repay the loan is known as loan tenure. This is an important criterion as the longer will be the tenure, the higher will be the cost of the loan to the borrower in terms of the interest rate. A borrower should always try to minimize his/her loan cost. If the borrower finds himself comfortable in repaying the principal loan amount in a short tenure then he should opt for gold loans. On the other hand, if the borrower feels that he will need more time to repay then he should go for a personal loan.
Conclusion:
Before arriving at any decision, any individual thinking of applying for a loan should make sure that he thoroughly compares all the available options in the market across various lenders and then shortlist and select one product that suits his requirements and situation the best and it should also provide the ease of repayment to the borrower.
