Both a gold loan and a personal loan come in handy when you need money fast because neither financial facility has an end-use cap on loan proceeds, making them the preferred option. However, depending on your financial needs, you must choose between the two.
Both financial products are preferred, but they have different interest rates, fees, and costs. A personal loan is not a secured loan or gold loan, while a secured loan is a gold loan. Here is some critical point to help you decide which loan is right for you now that you know how to select which type of loan to take.
- Choice for repayment
Personal loans are repaid by EMIs, which include both interest and principal repayment elements. In contrast to the EMI-based repayment system, gold loans offer a variety of repayment options. While some gold loans allow borrowers to only service the interest component each month, leaving the principal amount to be repaid on the maturity date, others allow borrowers to repay their interest amount upfront during loan disbursement, with the principal component to be repaid at the end of the loan term.
- Fee for processing
Personal loans usually have processing fees of up to 3% of the loan amount. Some lenders charge a flat processing fee in terms of as little as Rs 10 for gold loans, while others charge 0.10 percent to 2% of the loan amount. So, when deciding between the two loan options, compare the processing fees of both. When you factor in the processing fees, you will get a better idea of how much a loan would cost you.
- Sum of the loan
Personal loans are available in money ranging from Rs 50,000 to Rs 20 lakh, with some borrowers claiming to be approved for up to Rs 40 lakh. It is typically determined by the loan term and the borrower's ability to repay the loan to your banks like Bank of Baroda Personal Loan. The loan amount is determined solely by the value of the gold deposited as collateral. However, keep in mind that the RBI has prohibited lenders from approving gold loans worth more than 75% of the gold's value.
- The time needed for processing
Personal loan applicants must submit pay stubs, ITR forms, and other documentation for their loan application to be approved. Personal loans are typically disbursed within 2-7 days of the loan application due to the time it takes to verify these documents. Some lenders, on the other hand, appear to be able to disburse personal loans more quickly.
- Some of the personal loan
In the case of a personal loan or any other loan, the loan sum typically varies between Rs 50,000 and Rs 20 lakh, with some borrowers claiming to be approved for up to Rs 40 lakh. It is generally measured by the loan duration and the borrower's ability to repay the loan.
- The rate of interest
Personal loan interest rates vary from 8.45 percent to 26% a year (p.a.). The interest rate on gold loans will range from 7.25 percent to 29 percent per annum, depending on the loan term, LTV ratio, and repayment option chosen. Gold loan interest rates are typically higher for those with longer terms or higher LTV ratios. The interest rate difference between a gold loan and a personal loan and you must know about Personal Loan EMI Calculator might not be significant for those with good credit. On the other hand, gold loans could prove to be a more cost-effective alternative for those with bad credit.
Conclusion: The borrower's needs and profile will decide if they take out a gold loan or a personal loan. Personal loans are better suited to those that need more considerable loan sums for a more extended period. Gold loans would mainly benefit those who need more repayment flexibility or who have bad credit histories and cannot obtain personal loans at affordable rates.
