Most financial emergencies are unexpected. Taking out a loan can often be the only option to cover such unforeseen costs. A loan can come in rather handy when you need to pay for an unexpected medical expense or finance your sibling’s marriage. There are many other loan options on the marketplace to suit your demands. Personal and gold loans represent two of the most common ones.
A marriage ceremony or a medical emergency are just two examples of the life events when you could need money that you don’t always have. One of the most helpful ways to handle these kinds of financial difficulties is with a personal loan. But in recent years, more and more borrowers are turning to gold loans to cover these costs.
Similarly, if you are in need of a loan and have some gold jewelry, you may experience similar uncertainty regarding these two well-liked loan choices. You can make the best choice if you compare personal loans and gold loans based on a few important criteria.
How then can one decide between a personal loan and a gold loan? This article will walk you through a comparison between personal loans and gold loans to help you reach that conclusion.
Gold Loan: What Is It?
When applying for a gold loan, you must guarantee the loan with gold coins or jewelry as security. Depending on the grade and present-day worth of the gold, loans of up to 75–80% of the total value are typically available. The Loan to Value (LTV) ratio is used to determine the loan amount. Your gold loan can be repaid in installments each month. The lender will refund the pledged gold once the debt has been paid off. The majority of individuals are unsure about the nature of a gold loan—whether it is secured or unsecured. A gold loan is a secured loan because it is given as collateral—your gold.
There are no tax advantages associated with gold loans unless the money is used for business expenses, home renovations, building or buying a residential property, or both. Section 80C of the Income Tax Act of 1961 allows you to claim a tax deduction for home repairs. This deduction, which has an annual ceiling of Rs. 1.5 lakh, is intended for the principal sum. Section 24 of the Income Tax Act, 1961, allows you to claim a tax break of up to Rs. 2 lakhs every year if the loan is used for the acquisition or development of a residential dwelling.
Benefits and Drawbacks of Gold Loans
- First, unlike other secured loans such as home or auto loans, gold loans have no restrictions on how they can be used.
- Second, most banks and financial organizations offer gold loans at reasonable interest rates.
- The loan authorization and disbursal methods are quick and easy. You don’t need a good credit history to obtain a gold loan.
Drawbacks
- One of the main disadvantages of gold loans is that, in the event that you are struggling to repay the loan, the lender maintains the legal right to sell your gold in order to recoup the money.
- Lastly, the maximum amount you can borrow with a gold loan varies depending on the lender.
- For example, you can apply for a maximum loan of Rs. 4 lakh if the market value of your gold is Rs. 5 lakh.
Personal Loan: What Is It?
An unsecured loan is what a personal loan is. This implies that you are eligible for funds without requiring collateral. You can get a loan as long as the lender thinks you’re credible. You may be required to demonstrate your eligibility based on a variety of factors, including your work status, income, ability to repay, and credit rating, based on the lender’s policies.
Personal Loan Highlights 2024
| Loan Provider | Minimum Income | Loan Amount Range | Loan Tenure Range | Interest Rate Range | CIBIL Score Requirement | Processing Fees Range |
| Hero Fincorp | ₹15.00k | ₹50.00k – ₹10.00L | 12M – 60M | 9.5% – 16% | 700 or above | 1% – 5% |
| Cash Out | ₹12.00k | ₹10.00k – ₹4.00L | 4M – 4M | 1.5% – 3% | 550 or above | 1.5% – 2% |
| Stashfin | ₹20.00k | ₹5.00k – ₹5.00L | 9M – 36M | 2.45% – 4% | 725 or above | 2% – 2% |
| KreditBee | ₹16.00k | ₹1.00k – ₹3.00L | 1D – 4M | 1.5% – 3% | 550 or above | 5% – 6% |
| FlexSalary | ₹8.00k | ₹4.00k – ₹2.00L | 6M – 60M | 1.5% – 3% | 550 or above | ₹300 – ₹750 |
| Mpokket | ₹9.00k | ₹500 – ₹30.00k | 1W – 4M | 2% – 4% | 550 or above | ₹50 – ₹200 |
| Rk Bansal | ₹25.00k | ₹10.00k – ₹50.00k | 7D – 1M | 1% – 1% | 650 or above | – |
| Werize | ₹12.00k | ₹30.00k – ₹5.00L | 12M – 36M | 15% – 22% | 650 or above | 3% – 5% |
| IDFC Bank | ₹20.00k | ₹1.00L – ₹40.00L | 12M – 60M | 10.49% – 22% | 700 or above | 1% – 4% |
| Aditya Birla | ₹20.00k | ₹1.00L – ₹50.00L | 12M – 84M | 12% – 28% | 650 or above | 1% – 4% |
| Muthoot Finance | ₹20.00k | ₹1.00L – ₹7.50L | 12M – 60M | 14% – 22% | 685 or above | 1% – 3% |
| Tata Capital | ₹25.00k | ₹75.00k – ₹25.00L | 12M – 60M | 10.5% – 14.25% | 720 or above | 0.75% – 2% |
| Standard Chartered | ₹50.00k | ₹1.00L – ₹1.00cr | 12M – 60M | 11.49% – 20% | 740 or above | 1% – 3% |
| Bajaj Finserv (Prime) | ₹38.00k | ₹1.00L – ₹35.00L | 12M – 84M | 13.5% – 15% | 685 or above | 0.5% – 1.5% |
| Axis Bank | ₹25.00k | ₹1.00L – ₹40.00L | 12M – 60M | 11.15% – 16.25% | 690 or above | 1% – 4% |
| ICICI Bank | ₹40.00k | ₹1.00L – ₹1.00cr | 12M – 72M | 10.5% – 15% | 700 or above | 0.5% – 1.5% |
| Fullerton | ₹25.00k | ₹1.00L – ₹25.00L | 12M – 60M | 14% – 32% | 705 or above | 1% – 3% |
| HDFC Bank | ₹25.00k | ₹1.00L – ₹1.00cr | 12M – 72M | 10.25% – 16% | 700 or above | 0.5% – 1.5% |
| Loan Tap | ₹12.00k | ₹50.00k – ₹7.00L | 12M – 36M | 11% – 24% | 675 or above | 1% – 2% |
| Insta Money | ₹15.00k | ₹5.00k – ₹25.00k | 1M – 6M | 13% – 36% | 650 or above | 1% – 4% |
| Kotak Bank | ₹25.00k | ₹1.00L – ₹50.00L | 12M – 60M | 10.75% – 22% | 705 or above | 0.75% – 2.5% |
| Cholamandalam | ₹20.00k | ₹1.00L – ₹35.00L | 6M – 60M | 14% – 22% | 675 or above | 1% – 3% |
| SBM | ₹20.00k | ₹50.00k – ₹25.00L | 6M – 60M | 14% – 20% | 700 or above | 1% – 4% |
| Axis Finance | ₹50.00k | ₹1.00L – ₹50.00L | 12M – 60M | 14% – 16% | 650 or above | 1% – 3% |
Benefits and Drawbacks of Personal Loan
Benefits
- Because you can get the loan without requiring collateral or a security deposit, this type of financing is less risky.
- Compared to credit cards and other unsecured loans, interest rates are far cheaper.
- Smaller, higher-interest debts can be consolidated with personal loans by merging any remaining payments into a single monthly payment.
- If you already have a variety of credit histories, you can use personal loans to raise your credit score.
Drawbacks
- The fact that personal loans are subject to fees and penalties that raise the cost of borrowing is a major drawback.
- Processing costs might cost you anywhere from 1% to 6% of the loan sum, based on your lender.
- Thirdly, your credit score is the only factor that determines whether you can acquire a low-interest personal loan. This implies that your chances of being approved for a personal loan are low if your credit score is bad.
- Also, you might have trouble receiving the loan you desire if you have ever fallen behind on your Equated Monthly Instalments (EMI) on a previous lending product.
- Personal loans have tax advantages that are comparable to those of gold loans. Although you are not able to directly deduct taxes on a personal loan, you may be able to do so based on how you use the money.
Which is Better, a Personal Loan or a Gold Loan?
Let’s compare and contrast these two loan choices using a number of factors:
| Parameters | Gold Loan | Personal Loan |
| Loan Amount | Up to Rs. 25 lakhs | Rs. 50,000 to Rs. 20 lakhs |
| Interest Rates | 7.7% per annum onwards | 8.50% – 13.60% per annum |
| Processing Time | Can be granted within 90 to 120 min | May take some lenders from 24 hours to 7 business days |
| Loan Term | 12 months to 36 months | 48 months to 84 months |
| Eligibility |
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| Repayment | Monthly payments for Equated Monthly Instalments (EMIs) are required. During the term of the loan, the principal may be repaid in full at any point.
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Every month, the EMI must be paid. In most situations, there are no prepayment penalties if you foreclose or return your loan ahead of schedule within six months of the day it was disbursed.
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| Processing fee | Up to Rs. 25,000 in loans, there is no processing cost. All loans between Rs. 25,000 and Rs. 25 lakh will be subject to relevant fees and GST. | 2% of the loan sum, with a 1,000 minimum and a 10,000 maximum.
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It is transparent that selecting between a personal loan and a gold loan is contingent upon your own requirements and financial circumstances. For people with a bad credit history and extra gold to put up as collateral, a gold loan is the best option. A personal loan will work better for you, though, if you don’t have any gold to pledge. Personal loans would also be a preferable option if you require a longer repayment period. In the long term, a gold loan can be more economical if you are certain that you can repay the loan faster.
How to Decide Between Personal and Gold Loans
The choice between gold loans and personal loans is never easy to decide for borrowers. Because gold loans are secured loans, their interest rates are lower. But since personal loans are unsecured, their interest rates are greater than those of gold loans. Furthermore, processing charges and other costs are comparatively reduced for gold loans, whereas they are greater for personal loans. Additionally, the closer a borrower’s personal and gold loan CIBIL score is to 900, the better.
- The Maximum Borrowing Amount
For both kinds of loans, loan providers have maximum and minimum borrowing amounts. The typical limit for gold loans is in the range of Rs. 10,000 to Rs. 15 lakh. The amount you can borrow for a personal loan might be anything from Rs. 50,000 to Rs. 20 lakhs or more. The borrowing cap differs for each lender
Therefore, a personal loan is the best choice if you need to borrow more than Rs. 15 lakh. For smaller sums, you might apply for a gold loan.
- The Term of the Loan
Short-term loans with a six- to twelve-month period are secured by gold jewelry. However, you have the option to take out a personal loan for a term of 12 to 60 months.
A gold loan might be an excellent choice if all you’re trying to do is handle a brief financial crisis. A personal loan is an option, though, if you wish to borrow a larger sum for a little longer.
- Rate of Interest
Considering that you must pledge your gold as collateral against the loan sum, a gold loan is a secured kind of credit. A personal loan, on the other hand, is an unsecured loan that doesn’t need collateral. Personal loans are, therefore, marginally more expensive.
The majority of reputable lenders give gold loans with rates between 10% and 16%. Conversely, the interest rate for a personal loan may vary between 12% and 20%.
- Extra Fees
The additional fees you must pay when taking out a loan, including the processing charge, are the next crucial consideration. This may be up to 2% of the total loan amount for a personal loan. Prepayment penalties for personal loans can total up to 5% or more, even if you choose to pay them off early.
A gold loan’s processing charge is typically equal to 1% of the loan balance. The prepayment cost for a gold loan is also approximately 1% if you choose to foreclose or prepay it.
- Eligibility Standards
Since a personal loan is an unsecured loan, there are more conditions for eligibility. Before accepting the loan, the lender would look at your credit score, age, job experience, employment type, and income each month.
The standards for qualifying for a gold loan are less stringent than those for a personal loan. All you have to do to qualify for a loan is be at least eighteen years old and the legitimate owner of the gold you wish to offer as security.
How to Choose Between a Gold Loan and a Personal Loan?
As you recognize, a personal loan and a gold loan differ significantly from one another. When compared to a gold loan, the personal loan limit is higher and its term is longer. On the other hand, a gold loan offers lower additional fees, a minimum eligibility criteria, and an interest rate that is more appealing.
A borrower can choose a loan type based on their needs, as each has advantages and disadvantages. Choose a personal loan if you have to borrow more money for a longer period of time. But, if you possess gold jewelry and require loans up to Rs. 15 lakhs that you can pay back quickly, you can proceed with a gold loan.