Personal Loans Vs Gold Loans - Which one Should You Choose?

Financial emergencies can strike any time in life. Even the best financial plans can go wrong and leave you high and dry when an emergency strikes. It could be a medical emergency of a close family member, unexpected expenses due to family commitments, closure of your workplace, or any other emergency when you badly need some cash.

Earlier, whenever people were in emergencies, people rushed to the local money lenders and pledged their gold/silver ornaments/articles with them to get cash. The rates of interest charged by these lenders were very high and many individuals would eventually end up losing their gold.

With the development of financial services, banks and financial institutions entered the space of lending against gold. Since then, borrowing against gold or gold loans has become very popular. They are often considered as a good alternative to personal loans.

Let us look at the ways in which a gold loan can be beneficial to you in case of an emergency.

Benefits of a Gold Loan

A gold loan is a secured loan that can be availed by an individual against the collateral of gold. This loan can be availed from banks and non-banking financial institutions. The gold pledged will be held under the custody of the lender until the loan is repaid in full.

Instant Availability of Cash

A gold loan is a secured loan that is availed against the security of gold, either in the form of ornaments, bars, or coins of acceptable purity. Generally, only gold of 18 carats or above is accepted as security.

As the instant cash loan is disbursed within the hours against the security, & this ensures faster approval because lesser procedures are involved in the disbursal of the loan. Unlike other loans, there is no verification of your documents like salary or income details or credit check involved in gold loans which makes approvals and disbursals on gold loans quicker.

Lower Interest Rates

As gold loans are linked with security, the interest charged on these loans is lesser as compared to a personal loan. Therefore, a lesser EMI is payable on a gold loan over the term of the loan which may mean less burden on your pocket when availing a gold loan.

No Requirement of a Good Credit Score

To avail of any loan, a good credit score is an important requirement. A credit score of 750 or above is a mandatory requirement. However, when availing of a gold loan, your lender already has the security of gold. Hence gold loans are made available even to those with lower or no credit scores. This comes across as a big relief for all those who have a bad credit score and are looking for a loan or those who are new to credit.

Flexibility in Repayment

A gold loan can be repaid at any time even before the tenure of the loan without attracting any charges towards pre-payment. As soon as the loan is repaid, the gold pledged is released. Hence, a gold loan comes across as an option when you need quick loans for a short duration too. You can make use of the loan amount and repay the loan earlier to avoid paying interest.

A Good Way to Put an Asset to use

Individuals generally buy gold for various occasions like weddings and festivals and are rarely used in daily life. It is mostly stored in bank lockers for safety. Quite often, gold bars or coins are bought for investment purposes. So these assets mostly remain stored at home or in bank safe lockers. So when you are in need of some extra cash, using this gold is a good idea as you are putting your assets to productive use.

Higher Loan Amounts

As a gold loan is availed against the security of gold, higher amounts of loans are allowed. Some of the banks allow gold loans up to Rs 50 lakhs, which makes it an ideal choice when your requirement for loans is that of higher amounts. This could be particularly useful when you are looking for funds to start a new business or in other cases like renovation of a home or even a prolonged medical emergency requiring additional funds.

Can be Used for Any Purpose

A gold loan does not have any end-use criteria, it can be put to use for a variety of uses as per your choice and financial needs.

Now that we have seen the benefits of a gold loan, let us see how a personal loan stacks up against a gold loan in terms of benefits.

Benefits of a Personal Loan

A personal loan is an unsecured loan made available by banks, non-banking financial institutions, fintech lenders, or even peer-to-peer sites. They are beneficial as it is easily available and involves lesser procedures and documentation.

We have taken note of the benefits of a gold loan, let us now understand the benefits involved in availing a personal loan.

Faster Disbursal

Personal loans involve lesser processes and are much easier to use against other loans like home loans or vehicle loans. Due to these reasons, the time involved in the disbursal of a personal loan is much lesser and it can be availed with lesser hassles. This makes personal loans one of the easiest loans to avail from any lender.

Online Process Available

While gold loans require pledging of gold, a physical process of verification and assessment of gold is involved. So either, you will have to take your gold to the premises of the lenders or use the at-home facility allowed by some lenders. In both cases, there will be a loss of some time in availing of the loan due to the processes involved.

On the other hand, these days many reliable online lenders like Money View can make available loans for you right at the comfort of your home or office in a matter of hours. All you need is a device (mobile or a laptop) that is connected to the internet.

This is a huge advantage that a personal loan can have over a gold loan.

No Requirement of Collateral

To avail of a gold loan, you need to have physical gold available with you. However, many of us work at places other than our hometowns and stay at hostels or paying guest accommodations where it may not be really safe to have gold in physical form.

In cases like these, it becomes impossible to avail of a gold loan in cases of emergencies. But a personal loan from online personal loan lenders can be easily availed from anywhere without the requirement of any collateral.

Lesser Documentation

As with gold loans, personal loans are also available at lesser documentation than other loans like a vehicle loan, education loan, or a home loan. Generally, the documents required for a personal loan are just your income proof, address proof, and identity proof.

Moreover, when going in for personal loans from online lenders, all you need to do is submit scanned copies of your documents online on their app or website.
This makes the process of availing a personal loan very easy for anyone.

No-Risk of Losing the Asset Pledged

Personal loans do not have any collateral, hence it is a safer loan to avail. After availing of a loan, you may come across various circumstances that may not allow you to repay the loan on time. In case of a gold loan, non-repayment of loan on time may result in your pledged gold being taken over by the lender to recover the amount owed by you.

So you may end up losing your asset in case your repayment does not go as scheduled.

No Margin requirement

When availing of a gold loan, the lender does not allow loans for 100% of the value of the gold. There is always a certain percentage retained as the margin to cover fluctuations in the prices of gold or any other unforeseen circumstance.

The margin requirements can go up to 25% of the gold value. For Ex: If the assessed value of your gold is Rs 100000, the maximum amount of loan that can be availed by you will be Rs 75000. Moreover, the per gram value of the gold is also decided by the lender which may be a tad slower than the market rates.

But, when you avail of a personal loan, you do not have to come across all these terms and conditions which makes personal loans extremely transparent and simple to understand.

Personal loans v/s Gold loans - Comparison table

For the benefit of readers, the benefits have been put in a table for easy comprehension and reference.