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Is gold loan safe as compared to other personal loans?

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Gold loan

Gold loans are safe and better option as compared to personal loans. Gold loans are more advantageous than personal loans with respect to interest rate, documentation required, tenure and processing charges.

First, we will understand the meaning of the concepts of gold loan and personal loan.

What is gold loan?

Gold loan refers to the financial assistance given by the institution or bank according to the gold provided by you. Gold loan is generally given up to 80 percent of the value. Gold can be in the form of jewelry. It must be surrendered to the bank or institution.

What is personal loan?

Loan provided by banks to individuals as per their credit report and income records is known as personal loan. Here, you are not required to provide any security. The interest rate is higher and you need to repay the loan by fixed EMIs as per the tenure.

Which is Quicker?

Processing time for a Gold Loan is less than one hour, whereas the processing time for personal loan may be from 1~5 days. The processing times varies for different financial institutions, still Gold loan is a winner in terms of processing time.

Difference with respect to rates of interest charged

As application of personal loans does not require submission of collateral security, the interest rates are considerably higher. But in case of gold loans, you are offering gold ornaments as security to the financial institution. Hence, you are charged with lower rates of interest. Gold loan is better with respect to interest rate.

Difference with respect to processing fees

Though the processing charges for personal loans are reduced by banks, you need to pay around 1% to 3% of the loan amount. For gold loans, there is no verification of your income statements, credit rating or guarantor. Hence, the processing charges are nominal. The charges are less than 0.5% and not more than 1.5% of the loan amount, depending on the loan approved.

Difference with respect to tenure of the loan

The period of personal loans is from one year to around three years. But gold loans can be provided even for three months. It is up to you for long you are repaying the gold loan amount.

Difference with respect to risk profile of the applicant

Personal loans are issued to the applicants on the basis of their creditworthiness and report. If the credit report of an applicant is high, then bank will charge lower interest rates. On the contrary, if the credit standing of the applicant is bad, then higher interest rates are charged. So, personal loans are influenced by the risk profile of the applicant. But gold loans do not in deeper detail of the applicant’s income and credit report. It analyzes the purity of the gold and sanctions the loan amount.

Difference with respect to repayment

Personal loans are repaid by fixed EMIs. If there is prepayment to be done, then some banks also levy charges for the same. Gold loans can be prepaid any time without any charges. But one has to pay the interest on time.

Thus, gold loan is better option than personal loans by all aspects.

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4 COMMENTS

  1. Most banks are comfortable giving loans against a collateral as compared to non-collateral loans. The most important difference between gold loan and personal loan is the rate of interest. While for gold loan usual rate of interest ranges from 13% to 14%, the same from personal loan ranges from 16% to 22%. In comparison with gold loan personal loan ranks lower on all aspects including the ease of getting a loan and the rate of interest.

  2. There are many kinds of loan which is provided by banks such as gold loan, personal loan, agricultural loans and many more.Among these, if you consider the gold loan, here is such a nice article that explains in depth which helps to those who are in need

  3. A gold loan does seem safer with respect to interest rates and collateral provided.
    All you have to do is provide some certified gold to the bank, and they will allow you to borrow money based on the amount of gold you have. Because the collateral is gold – a very valuable and measurable entity – the bank will feel safer that you want it back, and will therefore repay the loan.

  4. Gold loans seems to be better than personal loans on grounds like processing time and fees, rate of interest and the tenure. For personal loans the interest rate is in proportion to the credit rating. But for gold loan no such criteria is required. The only disadvantage with the gold loan is the security in terms of gold is kept with the lender.

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