Why Gold Loan is better than Personal Loan – A Comparative Analysis

Be it cultural, emotional or any other driving factor gold is found to be an integral part of the investments or savings of almost every Indian household. Loan against gold is becoming an upfront, option for handy cash in case of immediate financial urgencies. But how good is a gold loan in comparison to personal loans poses a question for the borrower. Here’s an elaborate look:

Gold Loan       Personal Loan

Identification:

A Gold Loan is one of the quickest and easiest courses to meet your immediate financial needs. It is simply, a loan provided to you, by a bank or financial intermediary, against your gold ornaments, as per the market value of gold. Personal loan is a loan given by banks and other private lenders to meet any kind of personal need like marriage, buying an electronic item or anything else.

 

Lower Interest Rates:

The interest rates on Gold loan hover on an average of around 12 to 15 % per annum. The average interest rate on personal loans, from any bank, ranges from between 18 to 24%.

Thus, the staggering difference of six per cent between the minimum interest rates places gold loan in my preferred list.

Trouble-free Disbursement Process:

Better the quality of the security, faster the loan disbursement. And gold ornaments being a good security   with the banks, for they know , that in case of non-payment of dues , they can easily auction the security and realize its dues. Thus, loan against gold ornaments get disbursed within few hours. On the contrary, in case of Personal loans , banks insists on income proof and  conduct thorough due diligence to ascertain applicant’s repaying capacity. The process takes at least three days to couple of weeks for complete processing and disbursement of the loan.

Nominal Pre-Payment Charges:

The obligation of fixed repayment of loan , using fixed EMI spanning over a fixed period of time, does not prevail in case of a gold loan. It can be repaid in any amount and thus can also be closed at any point of time. Whereas, a personal loan has to be repaid back, in fixed EMIs over a fixed interval of time. Even, in case of pre-payments of an amount, banks charge, a pre-payment fees of about two per cent of current outstanding principal amount.

Greater Loan Amount:

The amount of loan is dependent on the value of the gold in the current market. You can normally expect the loan amount of up to 70 per cent of current market value of your gold, which can also go up to 90 per cent if you are ready to pay higher rate of interest. In case of personal loan, the amount of loan is dependent on salary or the net earnings of the individual, with an added 2 to 3% processing charge for disbursement of the loan.

 

No Compulsion of Guarantor:

Gold being an security itself, banks do not ask for a guarantor while disbursing a gold loan. And this comes at a nominal processing fee of around 1 percent of the sanctioned amount of the loan. However, in case of a personal loan , The loanee has to arrange  for a  guarantee. He/ she is the second loanee , and is liable for repayment of the loan in case the first borrower ,  turns defaulter in repayment.
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