A personal loan is an option selected by many individuals in the financial crises. Another alternative of personal loan is gold loan or loan against fixed deposit. If you looking for a personal loan for your immediate cash requirement it is better to go for gold loan or loan against fixed deposit instead of a personal loan.
In this post, we will discuss key difference between these two loans and also reach to the conclusion that Gold Loan is better option compare to personal loan.
What is Personal Loan?
- The personal loan is loan given by the bank without any collateral.
- This loan is given by bank considering your income eligibility.
- A personal loan can be used for any purpose including medical expense, marriage expense, home improvement, purchasing household items or to pay your credit card debt.
- This loan is given to the salaried individual and self-employed.
What is Gold Loan?
- The Gold loan is given by the bank or financial institute by taking gold as collateral.
- The Gold loan is given based on the quantity of gold and its value.
- The gold loan can be used for any purpose like a business, medical expense, marriage etc.
- This loan can be given to the gold owner irrespective of profession.
What are the difference between Personal Loan and Gold Loan?
Processing Fees
The bank does not ask for any guarantor or any security deposit for the personal loan. Bank does verification of your income documents. As time and efforts are involved in this process bank will charge processing fees for the personal loan. The processing fees generally vary from 0.5% to 1% of loan amount.
In the case of Gold loan, no processing fees are charged by the NBFC (Muthoot Finance). However, the bank may charge processing fees for the gold loan. You can negotiate with the bank to waive off the processing fees on the gold loan.
Interest Rates
The interest rate applicable on the personal loan is very high compared to Gold Loan. The gold loan can be availed with 12-15% interest. However, for the personal loan, you need to pay the interest rate in the range of 18-24%. The main reason for a high-interest rate on the personal loan is no collateral requirement.
The difference in interest rate is making personal loan much more costlier compare to gold loan.
Repayment Tenure
The repayment tenure of personal loan varies from 1 year to 5 years. This means you need to repay the personal loan amount in 5 years.
However, the gold loan is available only for the shorter time duration of 12 months. So, if you are in the position to repay the loan in 12 months you can take a gold loan.
Pre-payment Charges
A personal loan is payable with fixed EMI, spanning over fixed period of time. If you wish to do Pre-payment bank will charge you pre-payment charges. This charge varies from bank to bank. However, it is usually in the range of 1-2% of the outstanding principal amount.
In a gold loan, no pre-payment charges are applicable. You can do repayment and close the gold loan at any time.
No EMI
In the personal loan, you need to pay Fix EMI and you cannot default. You need to carry principal and interest burden throughout the loan period.
However, in the gold loan, you can have an option of NO EMI. This means you need to only pay interest amount and a principal amount can be paid at the end of loan period. This feature reduces burden on the borrower considerably.
In nutshell Gold loan gives following benefits –
- Faster processing time as gold is given as a collateral.
- No or very fewer documents are required.
- The gold loan is less costly as no need to pay processing fees.
- The interest rate is low in gold loan compare to personal loan.
- You can avail No EMI option and reduce your burden considerably.
Personal loan or Gold loan which is best option?
Looking at the features and benefits mentioned above it can be said that that Gold Loan is Best Option compared to personal loan. Gold loan is less costly and offers multiple other benefits compare to personal loan.
Where to get a Gold Loan – Bank or NBFC?
You can take a gold loan from Bank or NBFC. Some of the most popular NBFC’s offering gold loan is as follows.
- Manappuram Gold Loan
- Muthoot Finance
- Muthoot Fincorp
In addition to NBFC banks like HDFC Bank, ICICI Bank, Union bank of India, Bank of India etc also offers a gold loan.
NBFC are preferred choice by many individuals due to simpler documentation and faster processing. However, if you look at the security of gold and interest rate bank is a more recommended option. Gold loan is offered by the bank at much lower interest rate compared to NBFC.
Conclusion –
From above discussion, it can be concluded that Gold loan is best option compare to personal loan.
If you have idle gold parked in your locker and you have immediate requirement of cash you should contact the bank to avail gold loan instead of personal loan.