In India of today, meeting a cash crunch scenario with a solution that is not only highly feasible but also avoids a burn in the pocket is easier than ever before. Starting from traditional lending instruments such as gold loans, all the way to more modern approaches such as personal loans have become easier to access than ever before, making them accessible to a wider range of people.
If you have been planning to get a loan for some time now, and you have some amount of gold available with you, as well as a good credit score to get your personal loan application approved, and yet you are confused between the two, then this article is for you.
In today’s article, we will cover the various aspects of both gold loans and personal loans in India and share an aim of understanding which one is best suited for your needs. Let’s get started.
What Is a Gold Loan?
One of the first and most important aspects we need to understand is the meaning of a gold loan. In simple terms, a gold loan can be understood as a traditional lending vehicle in which you, as the borrower, put forward or pledge a certain amount of gold as an asset or collateral for a loan amount you need to the lender. Wheres in a traditional loan, you need to either put pledge an FD or any other high net worth monetary assets in order to get approved for the loan; in this case, you will pledge a certain amount of gold that you hold with the lender, as it is anyway a high net value asset and get the money against it.
Gold loan is a very popular form of lending in the Indian market, as most Indians usually own a significant amount of gold under their names.
What Is a Personal Loan?
Now that you better understand what a gold loan is, let us understand what exactly is a personal loan. In simple terms, a personal loan can be understood as a financial instrument through which you can borrow a certain amount of money from the lender without having to pledge any asset or put forward any collateral, while at the same time take benefits of features like lower rates of interest, flexible repayment, quick processing and more.
While the concept of a personal loan is not entirely new in India, it has definitely gained a lot of popularity in the last few years to new-age fintech startups like MoneyView, which specialize in giving out personal loans.
Gold Loan vs. Personal Loan: A Closer Look
Now that we better understand the meaning of both gold loans as well as personal loans, let us analyze each of them across several verticals.
One of the first and most important aspects we need to look at while analyzing the different lending instruments available in the market is processing time.
If you want to take a personal loan in India, there are a few steps you need to follow, such as submit your income proof, eKYC details, and other tax information, along with sharing access with the lender to analyze your credit score. Once the application is submitted, the lender will take anywhere between 24 to 48 hours to go over and assess your application, and if your application is approved, the money will be transferred to your account instantly.
On the other hand, if you want to take a gold loan and you meet all the criteria of the lender, and your application gets approved, you can have the money in your bank account in an hour or two at max.
When you are planning to take a loan, one common question that must have pondered your mind is the total amount you can secure via the loan.
In India, you can get a personal loan for any amount between ₹10,000 all the way to ₹25 lakhs within a short period of time. But on the other hand, with a gold loan, you can get any amount between ₹1500 all the way to ₹1.5 crores depending on the net value of the assets you can pledge and also the criteria of the lending institution.
If you have ever wondered how lenders make a profit, the answer to your question lies in this vertical. For most loans in India, lenders charge a hefty amount as a processing fee, and while in most cases, you do not need to pay this amount straight from your pocket, it will automatically get deducted from the loan amount sanctioned to you, meaning you will have less money in your pocket at the end of the day.
In the case of gold loans, most lenders will charge you a processing fee in the range of 2% of the total sanctioned amount of the loan. This means that if you are borrowing a higher amount, you will lose out a significant amount from it via these processing fees.
On the other hand, in the case of personal loans, most new-age lenders such as MoneyView do not charge you any rate of interest whatsoever, which means that the whole amount which has been sanctioned to you will get credited to your bank account with no deductions whatsoever.
Rate of Interest:
Last but not least, one final factor to consider is the rate of interest you are liable to pay as a borrower.
For gold loans in India, the rate of interest is anywhere between 16% to 18% per annum, which means that these are generally costly lending instruments.
On the other hand, if you take a personal loan, you can get an interest rate of 1.13%, which is one of the lowest in the market, thus making sure that you save more money and reduce your financial strain in the long run.
Ending Lines: Which One Is Better for You?
Now that we have listed out both the meanings of gold loan and personal loan, along with the four verticals of comparison, it is up to you to decide which one is best suited for you. As you can see, both of them weigh out in terms of comparison, and thus, depending upon your exact needs, you will be the best one to decide.