With the availability of various borrowing options like a personal loan and gold loan, individuals in need of funds may get confused in choosing the right one. Financial institutions often project their personal loans as a flagship product. While both of them are great credit instruments, there are several areas where they differ. Individuals should be aware of these aspects before they go about looking for a good gold loan rate or a personal loan, for that matter.
Some aspects where personal loans and gold loans differ
Illustrated below are some aspects where gold loans and personal loans differ from one another:
Personal loans certainly come with a longer repayment period compared to a loan against the yellow metal. And it is also true that an extended loan tenor provides an applicant with greater space for paying off the debt.
But, an extended tenor also contributes to raising the overall loan amount that an individual has to pay. With an extended time period, the interest amount also accrues.
On the other hand, a shorter loan tenor like that of a gold loan can prove to be stressful for a borrower. And even more, if it comes with a higher gold loan rate.
But if one is confident of paying the loan amount and gets an impressive gold loan rate today, it can be a highly cost-effective option in the long run.
Options for loan repayment
Both gold and personal loans provide borrowers with the traditional option for repayment through regular EMIs to clear the dues. But besides this option, a loan against gold comes with highly flexible repayment options.
Gold loan applicants can choose from a broad range of repayments options according to their convenience. Individuals can select paying the principal at the end of the loan tenor and the interest periodically. Alternatively, they can also choose to pay the principal sometime later and the interest upfront.
Rates of interest
Compared to an unsecured personal loan, a gold loan interest rate tends to be affordable.
Risk assessment plays a major role in the determination of the interest rate of a loan. For a gold loan, a borrower is pledging collateral for reducing the risk of non-payment. Owing to this secured nature, these loans are accompanied by a lower gold loan rate of interest.
Quicker loan approval and disbursal
In comparison to the approval and disbursal time of an average personal loan, a loan against the yellow metal is significantly quicker. While the reputed financial institutions disburse a personal loan within the day, a gold loan is instantly disbursed.
This is again because a gold loan is of secured nature. Therefore, the financial institutions do not invest much time in its approval.
Credit score requirement
Due to a gold loan’s secured nature, financial institutions do not consider an applicant’s credit history much. Therefore, individuals with a low credit score can easily avail of a gold loan.
Such individuals can, however, boost their credit history through timely EMI payments. This will help them in acquiring loans easily in the future.
- Easy documentation process
Compared to a gold loan, the personal loans offered by financial institutions come with a longer list of the required documents. However, the secured nature of a gold loan is responsible for making its documentation process minimal.
A recent report stated that the gold loan market in India is anticipated to grow at a five-year compounded annual growth rate of 13.4% by 2022. After going through the above mentioned details, the reason for such intriguing stats is quite certain.
So, individuals interested in a loan against the yellow metal, check out multiple lenders before finally selecting one. Consider opting for a lender offering the best gold loan rate. This will make repayments simpler for applicants.
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