All that glitters is not gold, so they say. As clichéd as it sounds, the saying is true. However, gold in its true sense is beautiful, shiny and of course precious. It stands out, be it in form of jewellery, gold coin or even the elusive gold bar. Looks regal and royal in the hands of the beholder. Apart from the aesthetics, gold is also considered as one of the best tools of investment by many fund managers.

In this day and age, it’s a great age to be a consumer. Whether you’re looking for loans to bridge a short-term need or starting up your own business or even planning to take a vacation, you can get a personal loan to help you achieve your goals.

Wondering what gold has to do with achieving your goals?

Here’s the thing, whilst financial institutions like Tata Capital have come up with multiple loan products to help consumers like you, there’s still a lot of confusion in the minds of people as to what the ideal loan solution is. In recent times, many companies and NBFCs have come up with gold loans. Before you dismiss the idea, you will be surprised to know many individuals still avail gold loans for their financial needs.

While this may seem like a good idea, there is also the option of availing personal loans.

Now you must be wondering if a personal loan is better than a gold loan?

If so, are they the ideal solution to look at? Well, we’ll try debunking some of these myths so that you can make an informed decision.

What’s a Gold Loan?

A gold loan is a secured loan. In simple terms, you place physical gold (such as jewellery, coins etc) that you own as collateral for getting a loan. Gold loans can help you get your money requirements if you’re in a hurry. There’s no need for a guarantor in the case of a gold loan.

What’s a personal loan?

A personal loan is essentially an unsecured loan and it doesn’t need any collateral. A personal loan is ideal for fulfilling short-term financial obligations. Let’s say, you want to take a vacation but don’t have the required funds immediately. A personal loan is a great option to consider and with a good credit score, you can get a personal loan at a reasonable rate of interest. For e.g, you can avail Tata Capital’s personal loans for uptoRs 25 lakhs at attractive interest rates starting at 11.49%. So whether it’s a financial emergency or a loan to cover wedding expenses, a personal loan is an ideal choice for many customers.

Two sides to every coin

Here is a quick look at the pros and cons of these two types of loans if you are wondering which one of them will be right for you.

Gold Loan:

Pros:

Hassle free processing: Generally, gold loans are processed quicker. Documentation is also basic and the loan disbursement can happen in a few hours.

  • No Credit Checks: One of the advantages of a gold loan is that the lender doesn’t do credit checks unlike unsecured loans like personal loans. In other words, you don’t need to share your CIBIL score or declare existing loans or other debt obligations.
  • Competitive Interest Rates: The interest rates on gold loans are very competitive and hence customers prefer gold loans from reputed NBFCs as against local money lenders.
  • Flexible repayment schedule: Gold loans offer a high level of flexibility when it comes to repayment schedules. Customers can choose to repay as regular EMIs like normal loans or even choose to service interest during the loan tenure and then pay off at the end of the period.
  • Zero Pre-payment Penalty: Customers can opt to pre-pay loan amount without any penalties being levied

Cons:

  • Physical Requirement of Gold: The biggest drawback of a gold loan is that you need to have physical gold. So if you’re starting up in your career or in need of money for a wedding expense, a Gold loan may not be the ideal option for you
  • Asset Risk: Since Gold Loan is a secured loan, your asset is at risk of liquidation in case you are not able to repay the loan on time
  • Shorter Tenure: Typically Gold Loan tenures are 3 years or lesser whereas a personal loan can be for a longer period. Hence, for high loan amounts, the EMI payments can be a bit of a worry.

Personal Loans:

Pros:

  • No Collateral: A personal loan doesn’t need any collateral. So, in terms of need or an emergency, a personal loan is the best solution to go with
  • Multi-Purpose loans: A Personal loan can be availed of for many reasons such as higher education, vacations, wedding, home renovation, bridge payments for a home loan down payment or even in the case of an emergency that was unforeseen.
  • Basic Paperwork and documentation: For a personal loan, all you need is basic KYC information documents. If you have a Pan Card, Aadhar Card and CIBIL score, you’re all set. Tata Capital offers you personal loans on the basis of your salary slip details and address proof. Tata Capital also offers instant online approval.
  • Quick Disbursal: Disbursement of personal loans is also faster than most bank loans. Tata Capital, for instance, disburses your personal loan within 72 hours.

Cons:

  • Credit History and Eligibility Criteria: Being an unsecured loan, personal loans are disbursed only after checking credit history and eligibility criteria of the borrower.
  • Prepayment Penalties: Personal loans come with a penalty if pre-payments are made. However with flexi EMI options, like the one Tata capital has, you can make pre-payments at periodic intervals.

Everything in life has its pros and cons. If you are in need of funds, you will have to choose your best option. Financial institutions like Tata Capital understand this and hence provide personal loans to make sure that you can have your money and not keep your gold as security. In the end, all it matters is your investment is safe and so are your dreams.