WHAT IS A GOLD LOAN ?
A gold loan is a secured loan which means the borrower has to pledge his gold articles as collateral or security to the bank or to the moneylender. This security is taken by the bank in order to recover the amount of the loan if the borrower fails to repay the loan. This kind of loan is a safe and secure loan both for the borrower and for the moneylender. This is because the gold that is deposited by the borrower is kept safely with the moneylender. If the borrower fails to repay the loan in the tenure of repayment of that loan, the moneylender has all the rights to sell the gold of the borrower and recover his amount of loan. A gold loan is considered one of the easiest loans to apply for. The amount of loans depends on the Gold Rate Today.
What is a Credit Card ?
A loan averse to a credit card is an unsecured loan. It means that there is no requirement for any security or collateral. It comes for a particular period of time and has an interest rate too. Most people choose the option of a credit card loan on a gold loan because of the fact that a credit card loan is an unsecured loan. Both the gold loan and the credit card loans are good options but they do differ in many aspects.
Differences Between a Gold Loan and a Credit Card Loan : -
A gold loan and a credit card loan differ in so many aspects and both are considered as a good option for the borrowers. Depending on the features and the benefits of both the loans, a borrower can choose an option.
Following are the differences between a gold loan and a credit card loan : -
Collateral :-
A gold loan is a secured loan while a credit card loan is an unsecured loan. In a gold loan, you need to deposit the gold articles to the bank and if you are unable to pay the loan, the bank has all the rights to sell off your gold and get the amount. In a credit card loan, you will get the amount of loan without depositing an asset as collateral or security to the bank or to the moneylender. Therefore, if you will miss your payments, you will be charged a late fee and your credit.
Application process :-
The application process for a gold loan is faster and quicker than it is for a secured loan. The documentation is minimal and the eligibility criteria are also simple. A person can get a gold loan in few hours after the acceptance of the application. Your credit score is also not required while applying for a gold loan and your income proof is also not required. While in a credit card loan, the application process can take weeks if you do not have a credit card. Here, the repayment capacity and the credit score are the crucial factors that decide if your application will be accepted or not.
Interest Rate :-
The rate of interest is comparatively lower in a gold loan as compared to a credit card loan. For instance, the rate of interest on an Axis Bank Gold Loan starts from 7.5%. While in a credit card loan, the monthly interest rate is around 3%-4%. The annual percentage rate (APR) can range from 12%- 40%. It also depends on the repayment history and the capacity.
Loan Amount :-
The gold loan lenders will give you a loan after checking the purity of the gold and the weight of the gold. The market value of the gold is checked and then, the loan is sanctioned. In a credit card loan, your credit score, the repayment history decides that if the loan will be sanctioned to you or not.
Conclusion : -
Both the gold loan and the credit card loan comes with foreclosure charges but they are as low as 1% in a gold loan and around 3% in a credit card loan.
Also read this: Who can avail gold loan