While the gold loan interest rate being higher than that of a home loan it still has a much lower borrowing cost than a personal loan mainly because during the tenure of the loan, the borrower can choose to pay only interest and reimburse the postulated amount at the time of closure of the loan.
Turning on the lender, 60-90% of the value of the gold jewelry can be taken as a loan. Also, the loan can be taken for short tenures, making it ideal to use for cash flow inadequacy or crisis. Also, the pace of disbursement of a gold loan is very fast usually on the very same day. Gold loans can therefore be used to meet inadequacy of cash, such as a medical emergency, etc.
However, in the best bank Bank of Baroda Gold Loan, the physical ownership of the asset passes to the lender because gold is a fluid asset that can be sold easily and the lender may even have no command on it. Disparate a personal loan, a gold loan is a fixed loan given against the guardianship of the gold ornaments. Presently, under RBI guidelines gold loans can only be provided against gold jewelry and not against coins or bars. Gold loans also cannot be offered against gold or Gold funds which are essentially the Evanesce form of buying gold as per RBI guidelines. However many features of gold loans make them attractive to borrowers. Since these are secured loans against a physical asset with a value that can be defined, the level of risk is much underneath and therefore interest rates are lower for gold loans in comparison to a personal loan or other forms of loans.
These compositions will help you decide why should one prefer a gold loan :
Transforming time: A gold loan process is a firm loan and the timing of the loan is very speedy for this type of loan. Generally, the amount is solvent to the borrower's account within 24-48 hours. However, the limitation on applying for a personal loan can take 3 to 7 days, as the borrower is required to submit other related documents.
Loan amount: Personal loans vary from ₹ 50,000- ₹ 25 Lakh, while other lenders also offer up to 75 Lakh and in comparison, the value of a gold loan depends on the value of your gold asset, which you promise as collateral. However, the RBI barred lenders from lending gold loans above 90% of the gold standard.
Loan Term: The loan period for a personal loan is from one year to five years, and for a gold loan, the stay period lasts from 1 to 3 years. Always remember that staying longer means higher interest rates. If you are sure to repay the loan in a short term, then you should take out a gold loan.
Eligibility: Any person over the age of 18 can apply for a gold loan and no income is required as the loan amount is assessed for the value of gold. However, to apply for a personal loan, a paid employee must have a minimum income of ₹ 25,000. The applicant must have a full work experience of more than three years and a minimum of 650 credit points. While gold loan loans do not play a significant role.
Payment Option:Personal loans have the option to pay in the form of EMIs (including interest and predominant amount), however, in some gold loan schemes lenders allow borrowers to pay interest every month, and the predominant amount can be paid at maturity.
Conclusion:Choosing between the two will depend on the needs and requirements of the borrowers but before finalizing your decision be sure to compare the interest rate, processing fee, withdrawal period, and more. No matter what loan you choose, make sure you check your repayment and pay EMI capacity so that your credit score is not affected in the future.