Gold Loan Vs Personal Loan : What is your apt move?

HDFC Bank

The topic has been in debate for a while. Are you prepared to compare loans? While an interesting fact states, as of May 2015, people in India had 20,000 tonnes of gold in their homes in various forms – ornaments, coins, & bars. In the past year, the stats have risen. While a few take advantage of golden opportunities, others get a check mate. Personal loans, on the other hand, are more mainstream. Majority of Indians take out personal loans from instant loans provider. The funds drawn from personal loan can be used to pay medical bills or other large investments. The differentiating factor is the time taken to process the loan.

Before diving deeper into the concepts of the two loans, let’s examine them closer. Personal loans are loans borrowed from the banks to cover expenses related to personal purchases. While the documentation process takes a long time, loans taken from instant loan provider is beneficial if your expenses are on the higher side. Remember to check your CIBIL score before applying. Also, you must produce your income proof at the time of borrowing. While making the payments, you will have to make it EMI format. Personal loans do not allow the flexibility to return the money in variable amounts.

Before making the personal loan borrowing from any instant loan provider, ensure you ask yourself the following questions;
a) Do you have a stable job?
b) Do you have a good credit score?
c) Do you have any collateral?
d) Do you have your documentation in order?

Gold loans work on a different format. While most times we retain the gold at home idle, others grab the opportunity to place it as a collateral for loans. Hence, began the concept of gold loans. Most of country’s gold is not monetised, due to sentimental values. This is where the concept comes into play where you do not have to sell your gold but keep it as a collateral to be recovered later. The gold you keep in the bank works as security for both parties. If you fail to repay the amount in the stipulated time, the bank auctions it to receive the amount. It is always best advised to pay off the interest & get the gold back after paying the principal amount. Also bear in mind, there are no pre-payment charges. Gold loans give you more freedom & flexibility than personal loans.

While there are minor differences between the two loans, which many people are unaware, the larger differentiations are as follows;

 Personal Loan,b>Gold Loan
MeaningDrawn by an individual along with a guarantorDrawn by an individual against a certain amount of gold
CollateralsNo collateral requiredGold is as collateral
Loan AmountBased on applicant's CIBIL scoreUp to 60% -75% of pledged gold value
Rate of Interest16% - 22%12% -24%
Processing SpeedLengthy Documentation ProcessFewer Documentation Process
Processing Fees0.5% to 1% of loan amountNo processing fee (nominal fee charged occasionally)
Pre-Payment Charges2% of the principal amountNo or nominal prepayments charges
Payback OptionsRepayment in Equated Monthly Instalments (EMIs)Only Interest for loan payments & Principal amounted to be paid to close loan account and get it back