Gold Loan vs Personal Loan: Interest rates, eligibility, how to apply and other key details

Gold loans and personal loans are the two major borrowing options when you are looking for quick funds. There are times when you need money on an urgent basis but don't have it ready at the moment.

Earlier, borrowers used to depend on personal loans to meet financial emergencies such as medical requirements, higher studies or weddings. In recent years, people have turned to gold loans to meet such expenses.

Choosing between gold loans and personal loans seems tough because each of them has its own advantages and disadvantages, which depend on different factors such as repayment tenure, interest rates, loan amount, processing speed, and eligibility requirements.

Before we compare the two, let's understand what is gold loan and a personal loan and their features.

What is a Gold Loan?

A gold loan is a type of secured loan in which you take a loan from a bank or non-banking financial company (NBFC) by putting gold jewelry or ornaments as security in exchange for money.

To calculate the loan amount, the lender considers the weight and purity of the gold. Since the loan is secured, the interest rate is typically lower than that of personal loans.

Moneycontrol has partnered with eight lenders to offer fast, fully digital loans up to Rs 50 lakhs. The application process is easy to follow: enter your details, complete the KYC verification, and choose an EMI plan. Interest rates start at as low as 10.5% per annum.

Features of Gold Loans

• It is a secured loan as it requires gold as collateral.


• It has a lower interest rate, which ranges from 7-15% per annum.


• The borrower gets a loan amount up to 75% of the gold's market value.


• It is a quick process due to the minimal documentation.


• It has an option of flexible repayment, such as interest-only payments or bullet repayment.


• The tenure is shorter, typically ranging from 6 to 36 months.

Advantages of Gold Loans

• It has a lower interest rate compared to personal loans.


• The borrower can get the loan quickly as it requires minimum paperwork.


• It has flexible repayment options.


• The borrower can get the money even if the credit score is poor.


• There is no impact on the credit score if the borrower fails to pay back the loan, as no credit history is required.

Disadvantages of Gold Loans

• The borrower can lose their gold if they are unable to repay the loan.


• The gold is kept for a shorter duration, which means it requires quicker repayment.


• The loan amount depends on gold value.

What is a Personal Loan?

A personal loan is a type of unsecured loan that a person gets on the basis of their income, credit score, and repayment ability. A borrower doesn't need collateral to get money; instead, they can apply for a loan from a bank or non-banking financial company (NBFC).

A person applying for a loan has to have a good credit score so that the lender can get an assurance of their money not being blocked. The lender also checks the borrower's income before giving a loan.

Features of Personal Loans

• It is an unsecured loan, which means the borrower doesn't need to pledge any asset.


• It has higher interest rates, ranging from 9% to 24% per annum


• As the loan amount is based on income and high credit score, all borrowers may not be able to avail this.


• It takes a few hours to a few days to get approval.


• It has a fixed repayment tenure that ranges from 12 months to 84 months.

Advantages of Personal Loans

• There are no chances of losing assets if it fails to pay back the loan as there is no need for collateral to get money.


• A borrower can get higher loan amounts based on income and credit score.


• It has a longer repayment tenure, which reduces the EMI burden.

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Disadvantages of Personal Loans

• The interest rates are higher compared to gold loan.


• A bad credit score affects the approval chances.


• A borrower needs to have a stable income and job history to get a personal loan.

Gold Loans vs Personal Loans: Which is better?

Conclusion

Personal loans and gold loans have various uses. A gold loan is a better option if you have gold to pledge and require quick, low-cost funds. A personal loan, on the other hand, can be the best choice if you require a bigger loan amount, a longer repayment time and don't want to pledge assets.

If you are looking forward to affordable borrowing options Moneycontrol has partnered with eight lenders to offer fully digital loans up to Rs 50 lakhs. The interest rates start at as low as 10.5% per annum. The 100% paperless process ensures quick approval and disbursement even with a few minutes to a few hours.