In case of sudden need of money, the biggest question is which loan to take – gold loan or personal loan? Both have their advantages and limitations. On one hand, gold loan has the advantage of low interest and getting money quickly, while on the other hand, personal loan is easily available without any mortgage. In such a situation, choosing the right option depends on your need, financial condition and risk taking ability. In this article, understand the difference between the two loans and know which option can prove to be better for you.
What is gold loan?
Gold loan is a secured loan, in which you take the loan by pledging your gold ornaments, coins or jewellery. The lender assesses the value of your gold and decides the loan amount based on that. You have to repay this amount along with interest within the stipulated period. After paying the full amount, you get your gold back.
What is personal loan?
Personal loan is a financial option in which you get a lump sum amount which you can use for wedding, medical emergency, home renovation or other needs. This loan can be both secured and unsecured. In a secured loan, you have to pledge an asset (like a house or car), whereas in an unsecured loan, no guarantee is required. However, unsecured personal loans have higher interest rates and require a better credit score.
Difference between gold loan and personal loan
| Speciality | gold loan | personal loan |
|---|---|---|
| security | secured (gold mortgage) | mostly unsecured |
| interest rate | 8.5% – 15% pa (low) | 9.99% – 30% pa (higher) |
| loan amount | Up to 70-75% of the value of gold | Depending on income, you may get more |
| processing time | a few hours to 1 day | 1-7 days |
| documents | Minimum (KYC + Gold Valuation) | More (Income Proof, Credit Score) |
| Tenure | 3 months – 3 years | 1 – 7 years |
| credit score | not very important | very important |
| Use | no restrictions | no restrictions |
| advantages | Low interest, fast approval, easy process | No asset risk, long tenure, large sum |
| Loss | gold has to be mortgaged | High interest, strict eligibility |
Gold Loan vs Personal Loan: Which is better?
According to Mannapuram, which option between gold loan and personal loan is better for you, depends on your financial situation and need. If you need quick money for a short period of time, have less documentation or your credit score is not very strong, a gold loan may be a better option. In this the process is faster and not much formalities are required. At the same time, if you need a large amount – like for marriage, education, home renovation or other big expenses, then a personal loan may be more suitable.