Sometimes, financial needs prompt us to take out a loan. While some people choose to pledge gold, others opt for personal loans. Let’s explore which of the two options is better.
We need financial assistance at various points in life, leading us to consider loan options. Common choices include personal loans and gold loans.
Borrowers often weigh the advantages and disadvantages of each to determine which one is more suitable for their needs. Many economists recommend opting for loans against gold, primarily because they can be obtained without strict qualification criteria.
Documentation Requirements: A personal loan typically requires substantial documentation. You must apply with various documents, including proof of income and residence.
This process can be time-consuming. In contrast, obtaining a gold loan is usually faster and more convenient since it requires minimal paperwork.
Processing Fees: Lenders do not require collateral when applying for a personal loan but will assess your income documentation during approval.
They may charge a small processing fee. However, gold loans do not involve this fee because the gold is collateral.
Repayment Capacity Assessment: Lenders evaluate the applicant’s income to determine repayment capacity for personal loans, which can introduce delays in the loan approval process.
On the other hand, obtaining a gold loan is straightforward: borrowers need to pledge their gold as collateral, and the loan amount is determined based on the gold’s value.
EMI Options: Personal and gold loans offer borrowers the option to repay via Equated Monthly Installments (EMI).
However, gold loans generally provide more flexibility in repayment options. Borrowers can choose the EMI mode for repayment and settle interest payments during the loan tenure. At the end of the tenure, they have various methods for repaying the interest and the principal.
Interest Rates: Interest rates on gold loans are typically lower than those for personal loans, which are generally higher.
The maximum loan amount for personal loans usually ranges from ₹50,000 to ₹15 lakh, determined by the borrower’s repayment capacity and selected loan tenure.
In contrast, the loan amount for a gold loan is based on the value of the gold pledged as collateral, adhering to the lender’s loan-to-value (LTV) ratio.
The Reserve Bank of India has capped the LTV ratio for gold loans at 75%. This means borrowers can secure a loan up to 75% of the value of their gold.
By considering these aspects, borrowers can decide whether to pursue a personal or gold loan based on their circumstances.