Personal Loan vs Gold Loan: Pros and Cons explained - Check which is better for you

Personal Loan vs Gold Loan: Seeking a loan? Worried about which loan is better between personal loan and other options? Lenders are offering personal loans, credit card loans, auto loans, home loans, gold loans, education loans and so on. But which one is the best for you? Well, if you possess some gold jewellery or coins with you, you can avaail a gold loan at affordable rates and some additional benefits. However, there are some pros and cons for both personal loan as well as gold loan. Pankaj Mathpal, MD, Optima Money Manager told Zee Business Online, ''Gold loan is a better option, if you have some unused gold with you. It is comparatively cheaper than personal loans in terms of interest rate. Also, it does not ask for a credit score or guarantor''. 

However, keep in mind the following pros and cons of gold loans and personal loans before deciding the right option for you:

Gold loan Pros:

1. Easy and rapid loan processing: Gold loans are easy to process, they do not ask for tons of papers and formalities. If your gold is pure, the lender will grant you the loan, depending upon the terms and conditions. 

2. Flexible repayment structure: Gold loans have a flexible repayment structure as it allows you to pay interest during or after loan tenure, paying off the principal later or repay the loan amount in set EMIs.

3. Affordable interest rates: The gold generally have cheaper interest rates, as against other types of loans. This is the key reason why people prefer gold loans over any other loans these days. 

Gold loan Cons:

1. High Margin required: Banks only offer you a loan of up to 75% of the value of your gold. While remaining 25% cannot fetch you a loan, that acts as margin for banks in case of non payment. 

2. Loss of your gold: In case you fail to repay the loan or interest on time, the bank can liquidate your gold to recover their money. 

3. Only for short tenures: The gold loans are generally not given for more that 3 years or preferably shorter tenures, which is a big drawback for loan seekers.

''Personal loans are better, if you do not possess any collateral to mortgage, however they have higher interest rates compared to gold loans,'' mentioned Mathpal.

Personal loan Pros:

1. Quick documentation: Personal loans do not carry much time in disbursement of loans, as they process quick documentation and paper work.

2. No collateral required: Personal loans do not require any collateral as a form of security against loans. This feature of gold loans makes it even more favourite among people. 

3. Purposeful: It serves every other purpose of a loan seeker. A personal loan can be availed for various needs like wedding, home renovation, down payment on new house or for a family vacation overseas etc. It can be availed for any valid or sound requirement by the loan seeker. 

Personal loans Cons:

1. High interest rates: Personal loans carry higher interest rates as they do not demand any collateral. This is one of the negative aspects of personal loans.

2. Good credit score required: The bank would never disburse a loan to a person with bad credit score. The lender always ensures that the amount has maximum chances to be paid back on time. 

3. Early payments or loan closure penalties: In case you want to close your loan or pay early interests or EMIs, you may be booked with a penalty by bank. The lenders generally do not allow to close the personal loans prior to signed loan tenure. 
 
The personal loans, on the other hannd are unsecured loans, best for short-term financial requirements. These loans are quite popular among individuals as they provide urgent financial need especially in case of emergencies and unplanned hefty expenses. Gold loans are the secured loans that can be availed only if you own physical gold in the form of gold jewellery or coins. These loans are a good option for short-term money requirements or in case you need urgent money.