Personal Loan or Gold Loan – which is the better option?

When you need money on urgent basis then you might be thinking of taking Personal Loan or loan against gold. Both the options are good for short term financial crisis. Personal Loan is unsecured loans and is given to individual based on their income. The interest rate is higher since there is no collateral security in Personal Loan. Wherein, Gold Loan is the loan given by banks or NBFCs is given at a lower rate of interest since the physical gold acts as a collateral security. Let’s check the aspects of both the loans to find out the better one.

Processing Charge: Gold Loan charges you a lower processing charge compared to that of Personal Loan. Typically a Loan against Gold would charge you 1.5% of the loan amount wherein with Personal Loan you need to pay 1% – 3%.

Interest Rate: The biggest advantage of Gold Loan is that you pay lower interest rate compared with a Personal Loan. Interest would range between 16% – 30% per annum since Personal Loan does not carry any security. But Gold Loans are given as gold as security. Hence the interest rate would come down at 12% – 16% per annum.

Other benefits: In case of Personal Loan monthly EMI is the only option to repay the loan to Banks. But in case of Gold Loan you get two options to choose from. You can go for either the term option or the overdraft facility. In term option you need to repay the entire loan amount at the end of the tenor along with the total interest amount. The monthly EMI can be ignored while some lenders might ask you to just service the interest regularly. While with the overdraft facility you can withdraw more money than your available bank balance. You can withdraw funds as per your need and the interest is charged on the amount of overdraft and for the time taken to repay it. The overdraft options works well when you need money over a period of time.

Hence Gold Loan is a good alternative to personal Loans. Its processing time is a few minutes unlike a personal loan which can take at least a day. Gold loan works well for short term needs. Ideally, you should have an emergency fund to meet unexpected expenses, but if you don’t, you can easily look at gold loan. Especially now when the gold prices are high and the value of the gold sitting in your lockers have increased. So if you are sure that you mould meet the payments regularly then Gold Loan can be considered as one of the best loan option to meet short term liabilities without selling the ornaments.