Have you been wondering if you must choose a gold loan or a personal loan for your financial needs? In this article, we compare Gold loans and personal loans on 4 key criteria, to understand which one is better.
1.Time to get money in hand:
Gold loans are secured loans backed by the gold ornaments that you pledge. This means that the NBFC or bank you borrow from only tests the gold ornaments you pledge for purity, weight and legitimate ownership. Since the lenders need not do any other checks such as CIBIL score check, which need to be done for other kind of loans, usually time to get a gold loan ranges from 15-minutes (Ex: Rupeek Gold Loans) to about 2-3 hours. The short time to disbursal makes this the ideal loan for any kind of requirement which is time sensitive.
On the other hand, personal loans have a time to disbursal anywhere between 2 days to a couple of weeks. The borrowers need to have a very good CIBIL score and need to arrange for guarantors while taking a personal loan. Banks insist on income proof and conduct thorough due diligence to ascertain applicant's repaying capacity. This takes at least two days to couple of weeks to process and disburse the loan. This kind of delay makes it unattractive for needs which are time sensitive.
Pro-tip: At Rupeek Gold Loans, we offer door-step gold loans in over 300 locations in Bengaluru. You may use this to avail a gold loan instantly, at the privacy of your home.
2. Loan amount eligibility:
Loan amount determines the suitability of a particular type of loan to the situaton at hand. Loans which do not provide necessary amount are not viable, even if they come with other benefits. Gold loans come with a clear advantage in this area, because your gold determines your loan eligibility in the case of gold loans and nothing else.
Loan amount in the case of a gold loan is determined basis the weight of your ornaments. Typically, lenders offer an LTV (loan to value ratio) of 60% to 75% (Highest possible in India, offered at Rupeek Gold Loans). This multiplied by the gold price for the day determines the amount you would be getting per gram of gold. If you have sufficient gold to cover your loan amount requirement, you need not meet any other criteria such as CIBIL score/minimum income requirement/etc. Even a person with ZERO income and poor CIBIL score can obtain lakhs of rupees as loan, provided he has sufficient gold.
Compare that with a personal loan, where your eligibility is determined by past payment history (CIBIL score), your income statement and a host of other things (say, the company you work for!), which are not completely in your control. This makes this option unviable for any serious needs. Typical limit for a personal loan is around 40% to 50% of your annual take home. Imagine a situation where you need INR 5,00,000 but being able to get only INR 50,000!
3. Interest Rate
Gold loan companies usually do not change the interest rate depending on the borrower's risk profile. This means that given a scheme, all the borrowers end up getting similar interest rates. These vary anywhere between 1% per month (offered at Rupeek Gold Loans) to 2.5% per month, depending on the NBFC and the scheme. If you choose the NBFC to borrow from and the scheme smartly, you may even get rid of the processing fee, appraisal charges, stamp duty, etc.
In contrast, interest rate in personal loans is dependent on your CIBIL score, salary/income, educational background, etc. This makes a personal loan very costly for people with either a bad or no CIBIL score or for those whose income is not very high. Further, any failure to pay EMIs on time would make future interest further higher.
4. Monthly Repayment Amount
In the case of a gold loan, customers are usually not required to pay monthly. NBFCs offer gold loans with a tenor of 3 months - 6 months and the customers are required to pay off the principal along with accrued interest, at the end of the loan tenor. Banks offer gold loans with monthly payment requirement, but thats limited to the interest accrued.
However, in the case of a personal loan, the customers need to pay monthly EMIs which include a part of the principal, along with the accrued interest. This makes the monthly payment amount larger for a personal loan, in comparison with a gold loan. Users who want more flexibility in terms of repayment are better off taking a gold loan from an NBFC.
Pro-Tip: At Rupeek Gold Loans, we do not insist our customers to pay any amount monthly. This means you can choose to pay when your cash flow is strong, which is something our customers find very useful.
Here's the summary in short:
For all practical purposes, you are better off arranging money using a gold loan, rather than a personal loan. The only reason personal loans are still consumed might probably be the apprehension attached with pledging gold with a bank or some company. But, if you choose the right company which has secure processes, is fully transparent and is RBI approved, your gold is extremely safe.
Finally, we would recommend that you choose basis the situation at hand, considering all the above factors. In case you feel you need more advice on gold loans, you may want to speak to one of our gold loan experts on +918039512525. We would be glad to assit you.