Gold has a certain element of emotional value for all Indians. Taking personal loans against family gold had not been considered as a preferable option till late though the tradition of loan against gold had been in practice since centuries through unorganized money lenders. The value of gold has been on the rise for the last one century uninterrupted and is currently touching unprecedented heights. Thus it makes sense to utilize the power of the gold lying in lockers to avail loans instead of paying higher interest rates for pure personal loans. With banks and other financial institutions entering this space of late there has been a marked increase in personal loans against gold among the Indian middle class.
In this loan one has to deposit the household gold in form of jewelry with the bank or financing agency and get a loan up to 80% of the value of the gold deposited with minimum documentation. Such gold loan is also less time consuming and is a good option for people seeking instant cash for their emergency need.
Wherein, personal loan is an unsecured loan given to the borrower to meet financial expenses without keeping any col¬lateral. It means the borrower of a personal loan does not have to submit any guarantee to the lender. All banks and financial institutions provide personal loans. Normally the rate of interest rate ranges from 14 – 30% and differs from bank to bank. In additions, the rate of inter¬est also changes from customer to customers within the same bank based on the customer’s credit history, transactions summary and deposits with the bank.
A quick comparison:
1. Interest Rate: While the personal loan interest rates are higher the gold loans aren’t that much. The reason is simple. Personal loans are unsecured and can have interest rates between 13% and 22%. Whereas, since gold loans are secured loans, the interest rates are 9.2% to 15%.
2. Processing Fee: on personal loan, it can be from 1% to 3% whereas for on gold loans it’s 0.5%. Some NBFCs may charge nothing as processing fee.
3. Tenure: On personal loan, it can be from 1% to 3% whereas for on gold loans it’s 0.5%. Some NBFCs may charge nothing as processing fee.
4. Credit Profile: A gold loan is a loan given against the gold assets. The person’s low credit profile might not affect his eligibility for the loan. Whereas, for a personal loan, having an impeccable score is a very important criteria.
5. Documentation & Disbursement: For gold loan it’s very minimal. Just the standard KYC and the gold. But in case of personal loan bank has to undergo a lot of checks before they sanction your loan. It could take some days before you had the money in your hand.
Unless you do not have enough gold for a gold loan or you need a larger amount of loan then you can go for personal loans, or else by all means gold loans save you more money.