Personal loans allow a person to obtain a loan from banks and other financial institutions to fund their expenses such as moving costs, debt repayment, medical expenses, marriage expenses, home renovation costs, funeral expenses, or even vacation costs. This loan allows a person to obtain a lump sum of capital, and the said capital has to be repaid over some time with a fixed rate of interest. A gold loan also called a loan against gold, is a secured loan that a borrower takes from a lender instead of gold ornaments such as gold jewellery. The loan amount sanctioned by the lenders is usually a certain proportion of the gold’s worth. One can repay it through monthly instalments, after which one gets their gold ornaments back. Contrary to other secured loans such as a home loan or car loan, there are no limitations on the final disposition of gold loans.
Type of loans:
A personal loan is an unsecured loan, whereas a gold loan is a secured loan. An unsecured loan is a loan that does not require any security or collateral
. In this case, the loan is sanctioned against the buyer’s creditworthiness. Hence they are not backed by any underlying asset. A secured loan refers to a loan protected by an asset which means that the asset serves collateral. If the buyer cannot repay their loan in full, the lender takes possession of the collateral and may sell it to regain the full or a part of the amount that was loaned.
Quantum of the loan:
A personal loan is subject to the income of the buyer. The buyer has to present their salary slip, income, or bank statement as proof of their steady income. Being an unsecured loan, these documents serve as evidence of the income of the buyer. In the case of a gold loan, the amount is sanctioned by lenders is generally a percentage of the collateral, i.e. the gold provided by the buyers. Gold loans are typically given to the extent of 60-90% of the value of the gold, depending on the terms of the lender.
Period of Loan:
Personal loans are generally sanctioned for a period of 1 to 5 years, and the instalments are computed on a monthly reducing balance principle which means the buyer can repay the loan through equated monthly instalments, which involves a part of the principal amount and the interest charged on the same. Gold loans have a relatively shorter tenure as compared to other loans. Usually, the tenure of the gold loan is seven days to three years, with some lenders even offering five years. Opting for a gold loan might be cheaper for those buyers who can repay the amount in 1-2 years because of the interest rate.
Interest rate:
The interest rate in the case of a personal loan is high because of the nature of the loan, i.e. it is an unsecured loan. Various factors such as one’s credit score, age, and steadiness of income play an extremely vital role in determining the personal-loan/personal-loan-interest-rates/
Personal Loan Interest Rate Whereas the interest rate in gold loans is relatively lesser because they are secured loans, the risk level is much less as the loan is sanctioned against security, i.e. the gold.
Monthly instalments:
The monthly instalment of a gold loan can only contain the interest payment if the buyer chooses to repay the principal amount of the loan at the end of the tenure. This subtracts the monthly amount paid by the buyer during the duration of the loan. For personal loans, the buyers are required to make equated monthly payments that include a part of the principal amount and the interest charged upon the same.
Processing Time:
Gold loans are secured loans, and the processing time in this loan is rapid. Generally, the amount is deposited in the buyer’s account within 24-48 hours. In this case of personal loans, the processing time can take up to 3-7 days as the lenders verify the various statements provided by the buyer. Banks such as personal-loan/city-union-personal-loan-EMI-calculator City Union Bank Personal Loan provide speedy processing time even in personal loans as they offer online loan approval facilities.