There are many who look for funds from multiple options nowadays, however, they must extremely be careful with the decisions and choices they make. Personal loan endows assistance in an instant cash crunch and provides a competitive rate of interest which will not be a pinch on your pockets. Many looking to lend funds even look out for alternatives like a gold loan, which endows instant disbursal as well as flexibility like a personal loan. Both loan options come with their set of benefits and drawbacks and might prove advantageous or become a monetary burden. Here are a few important parameters of both loan types, which can assist you to make a prudent decision and get you out of the monetary crunch. 

What is a gold loan?

A gold loan from any lender may it be an SBI bank gold loan or other lenders is by nature a secured loan option, wherein you require keeping your physical gold with the lender in form of coins or jewellery as security for fund needs. It is looked upon as a prudent choice for short-term fund needs. Listed here are some primary features and benefits of a gold loan you must factor in before determining if this is an apt option for you. 

Gold loan crucial features you must be well-versed with – 

Higher loan proceeds 

The gold loan generally offers a higher cap on the loan proceeds than a personal loan and loan against a credit card. Most financial institutions provide a personal loan of as high as Rs 40 lakh while lenders offer a gold loan of maximum proceeds of up to Rs 5 crore. In the case, you hold a higher loan proceeds requirement, then you can opt for a gold loan. 

Zero credit history required 

With a loan against gold, you do not require worrying about your credit score as financial institutions do not factor in your credit history. Usually, you do not require furnishing your prevailing debt or loan obligations before opting for a gold loan. 

Low rate of interest 

Usually, a gold loan has a lower interest obligation as compared to a personal loan, which means the gold loan cost is less than other kinds of loan. Also, you may be required to endow less money from your pocket to make your loan repayment. 

Repayment flexibility 

Gold loan provides distinct repayment options, which isn’t the scenario for other loan types. Following are the 3 most common forms of repayment options available – 

       Regular EMI choices or

       Repay just the interest constituent during loan repayment tenure and repay the remaining towards the end of the loan repayment tenure or

       Pay the loan and interest constituent towards the end of the repayment tenure with zero payment before this. 

What is a personal loan?

A personal loan is an unsecured credit option, which is best for meeting your short-term monetary obligations. A personal loan is looked upon as a popular choice among many to tide over immediate financial requirements, particularly, in the scenario of exigencies and unplanned expenses. Following are a few basic features of a personal loan that you must factor in before determining if this choice is correct for you. 

What are the features and benefits of a personal loan?

Zero security or collateral – It is looked upon as the biggest benefit because you as a borrower do not require keeping any asset as security or collateral while opting for a personal loan. 

Instant disbursement – Most financial institutions credit loan proceeds to your account within 48 hours post-loan approval. 

Serve as distinct purposes – You can take up a personal loan for distinct purposes like home renovation, a wedding, a down payment on a home or for a family vacation abroad. 

Minimal documentation – Personal loans do not come with elaborate documentation. You are just required to offer basic KYC details and income proof as needed by the financial institution. 

Gold loan vs personal loan – Which one is a better option?

Is a gold loan considered a better option than a personal loan? Let’s analyse the options to find out the best option – 

Rate of interest – 

The personal loan rate ranges anywhere between 12 and 24 per cent per annum. The gold loan rate ranges anywhere between 9 per cent and 27 per cent per annum. If you hold a good credit profile, then you can enjoy a lower rate of interest on both personal loans and gold loans. This said a gold loan might prove to be a good option in case your credit profile is not good or poor. 

Loan repayment tenure – 

Personal loan repayment tenure ranges anywhere between 1 and 5 years. A few lenders might endow a repayment tenure of as high as 7 years. For the gold loan, the repayment tenure usually ranges between 7 days and 3 years. A few lenders might provide a repayment tenure of as high as 5 years. If you are looking for a higher repayment tenure, a personal loan is a good choice. If you can repay your loan quickly, a gold loan may come across as a cost-effective financial option.  

Loan proceeds – 

The personal loan proceeds generally range between Rs 50,000 and Rs 20 lakh. A few lenders can even provide a higher loan proceed of up to Rs 40 lakh based on your repayment tenure and potential. As a gold loan by nature is secured, the loan proceeds depend on the gold value deposited as security or collateral. Generally, 75 per cent of gold’s value is processed as loan proceeds. 

Repayment option – 

Repayment of personal loans is done in form of EMIs i.e., interest plus principal constituent is spread across repayment tenure. In contrast, gold loan provides distinct repayment options involving EMIs. For instance, you as a gold loan borrower can select to only service the interest constituent every month, leaving the principal to be repaid on maturity. The next option is to pay the interest constituent up front when the loan is disbursed and the principal constituent to be paid by the end of the repayment tenure. If you have any repayment constraints owing to the fluctuations in short-term cash flow, opting for a non-EMI option may be a prudent solution.

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