Everyone needs help with money now and then, and there’s nothing wrong with looking for loan options to get it. But there are many ways to borrow money, and you might have trouble deciding which one to use. People usually use gold loans and personal loans to get cash in a hurry because they can get the money quickly and don’t have any restrictions on how it can be used.
When you apply for gold or a personal loan, they check your credit score, but it doesn’t matter as much as other loans. We’ve compared personal loans and gold loans in detail below to make an informed choice about which would be better in an emergency.
Definitions of a Gold Loan and a Personal Loan
Gold Loan
You get a better idea when you call a gold loan by its other name, “loan against gold,” you get a better idea. The borrower puts up their gold as collateral, and the loan amount is based on a percentage of the gold’s value. This is called a “secured loan.” The borrower then makes payments every month until the loan is paid off, at which point the lender gives back the gold.
Personal Loan
Like a signature loan, a personal loan works the same way as a gold loan, except that it’s an unsecured loan, which means that it doesn’t have to be backed by anything. If the borrower doesn’t put something up as a guarantee, the loan amount will usually be much lower, and it will be harder for the borrower to get the loan. The loan agent will look at the applicant’s credit history during the application process for both types of loans. However, this isn’t usually as important for gold loans.
Personal Loan vs Gold Loan
Interest Rates
Lenders charge higher interest rates based on how much a loan will pay back. For instance, gold loans tend to pay out more than personal loans or other unsecured loans, so their interest goes through the roof.
On average, the interest on a gold loan can be anywhere from 7.5% to 29%. On the other hand, personal loans have rates that range from 9 to 24 percent. But a lot of what a loan’s interest rate is based on is how risky it is.
Gold loans have lower interest rates because the borrower puts up collateral. This lowers the risk that the borrower won’t pay back the loan. On the other hand, personal loans will cost more in the long run because they are not secured.
Loan Tenure
The length of time the lender gives the borrower to pay back the loan is called the loan tenure. Personal loans usually have terms that last from one to five years, while gold loans have terms that range from three years to seven days, depending on how much money was borrowed.
Higher loan terms give you more time to pay off your debt, but they also give interest time to build up, making the total amount you have to pay to go up. Gold loans give you a shorter loan term, which can be stressful if you get a loan with a high-interest rate. But for people who are sure they can pay back their loan quickly, a gold loan can be the most cost-effective choice in the long run.
Repayment Options
With both a personal and a gold loan, the borrower can pay back the loan in equal monthly installments (EMI) and avoid most restrictions on how much they can pay. The borrower and lender agreed on a fixed monthly income repayment term in advance. On the other hand, Gold loans have more flexible options for paying back the loan. The secured loans make it more likely to pay back the loans on time.
For example, some gold loans let people pay only the interest until the loan is paid off, at which point they have to start paying the principal amount. Another way to pay back a loan is to pay off the interest. The borrower only has to pay back the principal at the end of the loan term. Gold loans give you options to make it easier to pay back your loan, which gives you the best chance of doing so.
Processing Time
When people have money problems, they will sign up for a gold loan or a personal loan because lenders can process them quickly. But they have to send in the right paperwork with the loan application. Even though that is a long process, gold loans are better at getting money to people than personal loans.
When you apply for the average personal loan, the lender will closely look at your credit score to make sure you can pay back the loan and figure out your loan ranges. To get a business loan, you have to take extra steps. The loan-to-value ratio will tell you if your business is worth the financial risk.
Since the approval process for personal loans is more in-depth, it usually takes between 2 and 7 days to send the money to you. Few lenders will give a loan to someone with bad credit, except for illegally barred lenders.
When you apply for a gold loan, unlike a personal loan, the lender will not look at your credit score at all. Instead, they will check the quality of the gold you pledge and use that to figure out how much of a loan you can get. So, if you’re in deep financial trouble, have gold lying around, and have bad credit, a gold loan is your best bet for getting a larger loan amount as quickly as possible.
Processing Fee
Gold loans are usually given out as quickly as possible, but there are some processing fees that you have to pay before you get your money. Even though these fees are part of a personal loan, they are usually limited to a service fee, an insurance fee, and a processing fee.
On the other help, you’ll have to pay the usual processing fee and fees for valuing the gold, administration, paperwork, and more with a gold loan. By adding these extra costs, you can get a more accurate idea of how much it will cost to apply for gold or a personal loan and choose the one that will help you the most.
Conclusion
Comparing a gold loan to a personal loan, neither comes out on top. Get a personal loan if you don’t mind a small delay in getting your loan money and would rather have a long time to pay it back with a higher interest rate. On the other hand, get a gold loan if you have gold to use as collateral and need it right away, even if you have to pay it back quickly. But the better item about these loans is that even if the borrower has bad credit, it is not a strike that can’t be fixed.
