Gold Loan vs. Personal Loan: How to Choose Between the Two for Meeting Your Needs?

When individuals need quick fund assistance, they mainly look for two options: a personal loan and a gold loan. In this article, we will compare both loan options and check the ideal loan option for you but if you have a decent credit score then you can apply for a personal loan.There are a lot of loan options that can be used to get funds, but in India, there are two loan options that are used mainly:

I. Personal Loan
II. Gold Loan

Let's learn more about both loan options in detail.

What is a gold loan:

The process of getting funds through pledging your gold ornaments at any bank or NBFC (Non-Banking Financial Companies) is known as a Gold Loan. This is because banks don't monitor the usage of funds given through this loan. So you can freely use it for various purposes like weddings, vacations, debt consolidation or miscellaneous expenses.

Customers have to repay the borrowed loan amount along with the interest rate. Therefore, it is very important to repay the amount within the loan tenure. Missing even a single instalment can heavily affect your credit score.

In case, the borrower can't repay the loan amount. Then the bank will seize your gold ornament and sell it at an auction to recover the loan amount. Although, the bank will notify the borrower by sending multiple notices before moving ahead with the auction.

And if the borrower is unable to repay the loan amount even after sending several notices, the bank will proceed with the auction.

Advantages of gold loan:

A gold loan is definitely the best option if you are looking to get funds through pledging your asset. There are a lot of advantages that are associated with this loan. Some of them are listed below:

I. Flexibility: Banks don't monitor the usage of the fund given through gold loans. So customers can use it for various purposes at the same time. However, they can't use it for any illegal practices.

II. Documentation: The complete application process is very easy and hassle-free, so customers don't have to worry much about the documentation and application process. They have to submit some essential KYC documents along with their application form, which will be given by the bank.

III. Credit Score: Your credit score does not determine the approval process. Your application will be approved even if you have a bad credit score. But you can use this loan as an opportunity to increase your credit score.

IV. Repayment: Banks give customers the flexibility to choose a repayment tenure and structure according to their budget and income. So they can easily choose a repayment structure that will allow them to repay the loan amount quickly.

Personal Loan:

It is an unsecured loan. So you can apply for this loan at any NBFC bank of NBFCs. But they will have some fixed eligibility criterias. These eligibility criteria will determine whether or not your application will be approved.

A lot of banks like PNB Gold Loan, Axis Bank, etc., use credit scores as a primary method to determine individuals eligibility. So you'll have to maintain at least a decent score of 750 to get your loan approved. On the other hand, a bad credit score can lead to the rejection of your application.

Although there are banks that will approve your application even if you have a bad credit score. But they will charge you with high-interest rates and charges.

Advantages of personal loan:

I. Collateral:- The most significant advantage of a personal loan is that you don't have to pledge any asset to get funds from this loan. You can quickly get funds if you meet their eligibility criteria.

II. Flexibility:- Customers get the flexibility to use the money however they want. Banks won't monitor the usage of funds given through personal loans.

III. Documentation:- The application process for a personal loan is very quick and simple. It takes at least 2-7 business days to approve your application.

Conclusion:-

If you have gold ornaments that can be used to get funds, you should apply for a gold loan because you'll get a low interest rate here. If you don't have any gold ornaments.

Also read this: What is the Least Expensive Approach to Get Cash