Know Why Gold Loan Trumps Personal Loan?
If you are searching for a loan and you have gold with you, then you can opt for the fast emerging Gold Loan instead of going to the “Unsecured” Personal Loans. In India, many people are emotionally attached to their jewelry. So they prefer to keep it safe in their bank lockers. But this perception of people are changing day by day, and they are using their gold to raise short-term loans at a cheap interest rate as compared to Personal Loan.
There are some advantages and disadvantages to every loan. So to apply for a loan one should know about the advantage and limitations of that loan.
Why Opt for Gold Loan instead of Personal Loan?
1. The Rate of Interest
Gold Loan provides less rate of interest as compared to unsecured Personal Loan. The rate of interest in gold loan varies from person to person. In Gold Loan, a rate of interest hovers between 13% and 16%, whereas in a personal loan it is between 12% and 24%.
2. Repayment of Loans:
The Gold Loan provides facility to repay only interest at the beginning and can pay the principal amount at the end of the loan tenure. No other forms of credit provide this kind of option to the customer. A customer can repay his loan on three different formats; first in the form of Term Loan, second in EMI form; and third in Overdraft form. But Personal Loan allows their customer to repay their loan in EMI form, other 2 formats is not applicable.
3. Disbursal Time:
The bank takes hardly 10 minutes for the approval of the gold loan and the disbursal time taken by the gold loan is maximum 2 hours, as it doesn’t go into any detailed information.
But in a personal loan, it comparatively takes longer time for the approval and disbursement of the loan.
Gold Loans are the secured loan as it keeps gold as a security with the bank. It requires minimum documentation. You have to submit your two photographs, any ID proof, and residence proof.
As the personal loan is the unsecured loan; there are different documents required to apply for a loan. You have to submit your two photographs, any ID proof, salary slip of last three months, last three months bank statement, and residence proof.
5. Pre-payment charges:
In a gold loan, you can pre-pay your loan anytime, and most banks or any NBFCs will not levy a penalty on you. But you will get your mortgaged gold back only after you pay all your loan completely.
In personal loan bank levy a pre-payment penalty of 5% on the loan amount.
6. Monthly Installments:
In a personal loan, EMI’s are calculated by their CIBIL score and repayment capacity. So, the people who have a lower income or poor track record have to pay high EMI’s, or sometimes they get rejected.
But in the gold loan, one does not have to worry about low income or any CIBIL score, because it is a secured form where you have to give your gold as a security to the bank. And anyone can apply for this loan.
The clause of Gold Loan – One of the biggest limitations of the Gold Loan is that a person may lose his deposited gold. If a person fails to repay their loan, then they can lose their asset and the lender can auction the gold to recover their dues.