Racking your brains over which loan to go with to finance your next purchase? It is entirely understandable given the sheer amount of loan products to choose from, which come with their share of pros and cons.
You might find an unsecured loan lender but might not be happy with the rates they’re charging, or you might find a lender charging low interest rates but require collateral which you don’t have. In any case, the burden of choice can be overwhelming.
Additional Read: How to Choose the Best Personal Loan?
In this age of rapid, unchecked spending, two types of loan products are getting increasingly popular; gold loans and personal loans. Both loans come with no restrictions on the usage of funds. Also, both are a fast way of financing your immediate needs. However, they vary significantly in how they operate.
Let’s have a closer look at their differences.
Gold Loan vs Personal Loan
|Points of difference||Gold Loan||Personal Loan|
|Tenure||Up to 3 years||12 – 72 months|
|Disbursement speed||Immediate sanction||Instant approval|
|Security||Gold is used as a collateral||There is no need to pledge collateral to avail a personal loan|
|Pre-payment charges||Zero pre-payment penalties||Pre-payment penalties are applicable|
|Pay-back options||Pay only the interest during the loan tenure, with principal to be paid at the end of the tenure||Equated monthly instalments( EMIs)|
|Processing fee||Nominal or no processing fee||The processing charges usually go up to 3% for personal loans|
Gold loans or Personal loans: Which is better?
The answer ultimately depends on your priorities and the assets you have in hand. While gold loans may seem a safer option, there are always two sides to a coin, even gold ones.
Though they don’t require a credit score, offer a flexible payment method, and charge nominal processing fees and pre-payment charges, there’s always a risk of you losing your assets in case of non-repayment of the loan. Also, a shorter overall tenure means a tight EMI schedule, with the amount increasing drastically with the amount borrowed.
On the other hand, personal loans are unsecured, which means you don’t need to present collateral. But this usually comes with a bump in the personal loan interest rates. Credit history also comes into play here, since bank needs to know if you’re capable of repaying the loan.
Additional Read: Factors affecting personal loan interest rates
In conclusion, both loans can be useful, depending upon your situation. If you’ve got spare gold in some corner of your house, then it’s good to utilize it for personal finance. If you’re in a deficit of such luxuries, then a personal loan might be the way to go.
If you’re a millennial, chances are you might not have any gold lying around. In such a case, we at Tata capital have affordable personal loans for you to finance your next purchase.
Also, we have our very own personal loan EMI calculator for you to fine-tune your loan product.
Visit our website today to learn more about a variety of loan products on offer.