Eventually, you can find yourself in a bind financially. Either you don’t have a rainy day fund or you can’t access it to provide you with the extra cash you need. Given the high cost of a personal loan, the best alternative is likely to be a gold loan. As luck would have it, banks and NBFCs have improved the way credit markets function today. The possibilities of a gold loan are now becoming apparent to the average consumer today. Gold loans are far more common than personal loans, so it’s natural to wonder why. Here are a few of the most compelling arguments that highlight why gold loans are so highly recommended.
The Role Of Collateral And The Time Required For Processing
No collateral is required for personal loans, but you will need to provide evidence of income. Loans secured by gold usually require the borrower to pledge gold jewellery as collateral before the loan can be approved and funds delivered. There is often very less waiting time associated with the latter as compared to personal loans.
Gold Loans Are Easier to Disburse Than Personal Loans
Personal loan disbursement is based on the borrower’s regular monthly income. It ensures quick and painless access and disbursement. Additionally, banks and other lenders will look at your credit report. You’re free to spend the money on whatever you’d want. Gold loans are also completely flexible in terms of repayment and usage of cash. On the other hand, credit rating is not a factor in any way. However, loans of this type are safe because of the gold jewellery you pledge as collateral.
Billing Fees for Processing
As opposed to other loan types, gold loans have no application fees. In contrast, personal loans invariably come with a processing charge that ranges from half a per cent to a per cent of the whole loan amount.
Comparing Personal Loan Requirements with Gold Loan Documentation
When applying for a personal loan, you’ll need to provide a slew of papers, including evidence of income and identification. Borrowers applying for gold loans are not required to present evidence of income.
Repayment terms that can be adjusted as needed
In comparison to personal loans, the terms of repayment for gold loans are more flexible. A secured loan ensures that payments will be made on time, thus they are convenient for clients. The interest and principal can be paid monthly or all at once at the conclusion of the loan term if you choose the more conventional and simple EMI payment option. At the conclusion of the term, you can choose to make a single payment that covers the whole principle and interest owed. When paying off a personal loan, you’ll need to make EMI instalments at a fixed interest rate.
In response to a personal loan application, a lender may do detailed background checks or analyses of the borrower’s financial situation. Gold loans, on the other hand, don’t necessitate any investigation on your part. Collateral in the form of gold is already on offer in order to secure the loan.
Difference Between a Gold Loan and a Personal Loan
For borrowers in India, gold loans are far more accessible because of the country’s widespread love of gold and belief that it is a sound investment. Loans secured by gold can be advantageous in the long run. That’s why it’s so much preferable to getting a personal loan.
Discount Factor Annual Percentage Rate
A gold loan’s interest rate will almost always be cheaper than that of a personal loan. A gold loan is secured, but a personal loan is not. For most borrowers, the APR on a target loan will fall between 11 and 13 per cent. The APR for a personal loan typically falls between 16 and 22 per cent.