GOLD OR PERSONAL LOAN: WHICH TO CHOOSE?

Every person at some point in their life has had this thought: personal or gold loan? Which one should you choose and why should you choose one? These answers vary much from person to person due to the circumstances and the following read helps you to find an answer to  the above questions:

Gold Loan

Using your gold as collateral to secure funds from the lender ( banks and other financial institutes) is a gold loan, just like the name suggests. Since we are securing our loan with gold, this is a secured loan that allows the lender to recover the disbursed amount if the borrower defaults. 

Personal Loan:

A personal loan is based on how credible you are to the lender based on past transactions in the institution. Since you are not obliged to keep any collateral it is an unsecured loan.

Why Gold Loan?

• Loan approvals are quick for gold loans as the amount is secured through valuables. This makes gold loans attractive for quick and urgent money requirements like medical emergencies, urgent funds, etc.
• Since credit history and CIBIL are unimportant for gold loans, they make acquiring funds easier.
• If not the banks, many other financial institutions offer gold loans at attractive rates and offers.

Why Personal Loans?

• Unlike gold loans, you can have the total amount offered (as gold loans usually only give out 80% of the value of the gold offered as collateral) in personal loans.
• There are very few risks associated with the loan as you are not offering anything as collateral.
• Personal loans can be used as consolidation refinancing options by clubbing all small loans under a lesser-interest loan.
• Personal loans and repayments help in maintaining and improving your credit score.

When should you choose a gold loan over a personal loan?

• If your credit score is not optimum, securing the amount through a gold loan is better.  
• For amounts less than Rs. 15 lakhs, a gold loan is the preferred loan (though it is up to the situation at hand of the borrower)
• For temporary quick money, people get gold loans as the payback period is usually around 12 months and you can get your gold back after it is paid.
• Since the gold rate is increasing daily, the same ornaments can be used in the future to borrow more.
• Gold loans are more attractive as emergency cash, as they have very little processing time and few charges.

When personal loans are preferred over gold loans?

• Personal loans are better suited for the requirement if you do not have any collateral or enough to meet the requirements.
• If the collateral is too valuable and you do not want to carry the risk of defaulting, personal loans should be preferred.
• Personal loans should be chosen if you plan on a longer repayment period.
• Borrowing limits for personal loans are higher compared to gold loans.

In short, personal loans and gold loans are great ways to acquire the required funds, but when to choose either of those depends on the situation at hand. Gold loans are secured, and you are handed over the amount in a jiffy with little processing time and charges. Personal loans become attractive because they provide you with collateral-less cash and a way to maintain your credit score and refinancing for your future needs. Choosing between the two depends on what you have at your hands and hopefully, this read made it a bit easier. 

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Author - Abhishek Sonawane

Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam(IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.