Gold Loan vs Personal Loan: Need money urgently? Decide by this detailed comparison - Interest rates, amount, fee, charges, EMIs and more

Gold loan vs personal loan comparison: Are you among those who are in need of money on an urgent basis? But, unable to decide between gold loan and personal loan as a borrowing option? People generally go for gold and personal loans when they need money urgently because two common features of gold loans and personal loans are quick disbursal and no restriction on the end-usage of loan proceeds. These features make them ideal for those requiring quicker credit access. However, personal loans and gold loans have other differing features, making them more favourable for some borrowers than others. Gaurav Aggarwal, Director and Head, Unsecured Loans, Paisabazaar.com, shares knowledge on both loan options to understand which one may work well for you as compared to the other - Gold Loan vs Personal Loan:- 
  
Gold loan vs personal loan comparison: Interest rates
 
Interest rates of personal loans usually range between 9% and 24% p.a. depending on the lender and applicant’s credit profile.  Gold loan interest rates, on the other hand can be anywhere between 7.50% and 29% p.a. depending on the risk assessment of the loan applicant, loan tenure, loan amount and repayment option opted for. 

Remember that some lenders charge higher interest rate for higher loan amount and longer repayment tenure. Hence, ensure you compare between lenders based on various parameters including interest rate, loan amount, tenure, processing fee, etc. 
 
The difference in interest rates of gold loans and personal loans may not be much for those with good credit profile. However, interest rates of gold loans usually work out to be lower than personal loans for those with poor credit profiles.
 
Gold loan vs personal loan comparison: Processing Time
 
While submitting personal loan applications, borrowers are required to submit their ITR forms/payslips and other documents to get their application processed. Since verification of these documents tends to take time, disbursal of personal loans may take up to 2-7 days. However, some lenders claim to offer quicker disbursal of personal loans, especially in case of pre-approved loans. 
 
Gold loans have one of the quickest disbursal among all loan options. They are usually disbursed within a few hours of making the loan application. The evaluation process is primarily based on the quality of the collateral with little or no emphasis on the borrower’s credit profile. Hence, those with instant fund requirements would find gold loans a superior option vis-à-vis personal loans. 

Gold loan vs personal loan comparison: Loan approval chances for applicants with poor credit profile
 
Lenders tread cautiously when it comes to disbursing personal loans considering its unsecured nature. They primarily approve applications and set interest rates after factoring in credit score, monthly income, job profile, employer profile, etc. 
 
Gold loans, on the other hand, are fully secured, backed by adequate collateral. This gives lenders the advantage of selling the pledged gold in case of default by the borrower. Thus, they take a less stringent lending approach while approving gold loans to those with poor credit scores and credit profiles.
 
Gold loan vs personal loan comparison: Diversity of repayment options
 
Personal loans are repaid in the form of EMIs, which includes both the principal and interest component. However, lenders offer wider choice of repayment modes in gold loans. Apart from the usual EMI mode of repayment, many lenders allow borrowers to just repay their interest amount every month leaving the principal component to be repaid on maturity date. Some also allow borrowers to repay their interest component upfront at the time of loan sanction and repay the principal amount at the end of the loan tenure. Some gold loan options also allow the flexibility of repaying both principal and interest components at the end of the loan tenure. Hence, the availability of non-EMI based repayment options make gold loans more suitable for those facing short-term cash flow mismatches and repayment constraints.
  
Gold loan vs personal loan comparison: Repayment Tenure
 
Tenure of personal loans usually range from 1 to 5 years, with some lenders offering maximum tenure of up to 7 years.  Repayment tenure in case of  gold loans are generally on the shorter side and range between 7 days and 3 years, with few lenders offering higher tenures of around 4-5 years. 

As  longer repayment tenures lead to higher interest cost, choosing a gold loan would be a more cost effective choice for those confident of repaying their loan within a shorter period. On the other hand, personal loans would suit those requiring higher loan amount and longer tenure. 
  
Gold loan vs personal loan comparison: Loan Amount
 
Personal loan amount usually range between Rs 50,000 and Rs 15 lakh with few lenders claiming to disburse higher loan amounts of around Rs 30-40 lakh. Lenders set the loan amount eligibility primarily on the basis of the applicant’s repayment capacity and loan tenure.
In case of gold loans, the loan amount primarily depends on the valuation of gold deposited as collateral and the loan-to-value (LTV) ratio set by the lender. LTV ratio is the proportion of the collateral’s value offered as loan amount. The LTV ratio of gold loans can vary widely depending on the lender, repayment option opted for, applicable regulatory caps etc. As a measure to provide relief to the borrowers distressed by liquidity and income disruptions, RBI has temporarily increased the regulatory cap on LTV ratio of gold loans disbursed by banks (for non-agricultural purposes)  from 75% to 90% till March 31, 2021. 
 
Gold loan vs personal loan comparison: Processing fees
 
The processing fee of personal loans usually go up to 3% the loan amount. In the case of gold loans, the processing charges tend to go up to 2% of the loan amount, with some lenders charging flat fee starting from Rs 10. Hence, loan applicants should ensure to factor in the processing charges while deriving the actual cost of availing a loan.