Personal loan vs gold loan: Which is better? Your loans decoded

If you’re dealing with an intense financial emergency or your financial situation has suddenly turned too fluid, there are a pool of options available by banks that can help you get through the distress. For sudden financial need, you can either choose to opt for personal loans, they are most easy and flexible form of borrowing. However, there are also secured form of loans such as gold ones which are actually emerging as an alternative to the personal loan. Both have their own advantages and disadvantages. 

Personal loans

The procedure to avail a personal loan is also very simple, however, your eligibility for availing this form of loan depends critically on your credit score.

Generally, personal loans are sanctioned to salaried, non-salaried and self-employed individuals. The documentation and rate of interest is different for personal loans granted to self-employed individuals.

Personal loans come with tenures ranging from 12 months to 60 months. Some lenders offer tenures starting from 6 months as well.

One of the most basic advantage of personal loan in comparison with gold ones, is that you do not have to keep any type of assets like property, yellow metal or life insurances, etc. as collateral with bank when you are in need of funds in emergency. 

Personal loans can be taken for many reasons especially during weddings, home renovation or down payment. Considering weddings come with a heavy amount of jewelleries, and not many would prefer keeping their assets as security with bank to opt for loans. 

Majority of lenders disburse a personal loan with 48 hours of time, once a borrower has been selected as per the banks criteria. 

Gold loans

Unlike personal, the gold loan is seen as a secured form of borrowing for both lenders and borrower. There is trust in the eye of lender, as it sanctions a sum of amount to the borrower against gold collateral. Simply put, a borrower can avail loan from banks by giving his or her gold jewelry, coins or bars as security with them.

The moment, the borrower finishes repayment of his or her tenure, the bank returns the shining metal on due date. 

One of the key advantages of applying for gold loan, is that they are processed within minutes and are generally kept for short to medium term duration. 

To apply for gold loans, a customer must be above the age 18 years and must own the yellow metal. 

Reason behind why a gold loan is easier, is because the interest rate on these form of loans are cheaper compared to other available options such as personal loan. 

Also, the tenure is very flexible varying from few days to 5 years. Furthermore, a bank or NBFC does not levy any pre-payment charges on gold loans. Documents needed for this form of loan is also very less. 

Which is better? 

Anuj Kacker, coo and co founder MoneyTap says, "Gold continues to be one of the most popular options for both savings and investments among Indians. Gold is also synonymous with a safety net in case of emergencies."

Kacker adds, "Hence gold loans are considered a reliable alternative to lending products. So when in need of funds, which loan to choose – a personal loan or a gold loan? The choice depends upon the tenure of the loan."

Explaining, Kacker says, most of the personal loans are collateral-free loans. And hence come with a higher rate of interest. Since longer loan tenure translates to a higher interest, availing a gold loan would be a cheaper option if you are confident of repaying it within a year. Whereas, opt for a personal loan if the loan amount is too big for you to repay it within a year.

Additionally, Kacker explains, that gold loans usually have a faster disbursal process as compared to personal loans.  

Customers should compare all the options and make an informed choice before opting for the one that suits their needs.