When faced with a financial crisis or a large expense, a loan might just be your best bet to get out of a financial hole. In this context, a personal loan or gold loan are often considered to be the best options. Both options are equally capable of meeting any of your expenses. The difference between the two is that in the case of personal loan you cannot give any type of collateral to pay off the debt sooner whereas the gold loan is backed up by your gold in the form of ornaments or gold coins (bullion is not currently acceptable by Indian banks and NBFCs). Listed below are some other key aspects that justify why gold loan is better than personal loan:
- Zero processing fees: As personal loans are given to you without any collateral, you need to submit your income proof documents along with 0.5 percent to 1 percent of the loan amount as part of the processing fee. The benefit of the gold loan here is you do not have to pay any or at most a nominal processing fee and only minimal documentation is required. But banks offering gold loan may need for some document proofs such as you ID and address proof. And you need to submit your gold with the bank to get the Gold loan application processed within a few hours at the most.
- Lower interest rates: If you keenly observe the gold loan interest rate in the market, you will find them floating around 12 to 15 percent per annum mark as they are secured loans. Whereas personal loan interest rates though they start at 11.49% you would be quite hard-pressed to get a offer cheaper than the18 percent to 24 percent range as they are unsecured. The substantial difference in the two loan types makes gold loan the preferred choice among a large proportion of borrowers.
- Easy payment options: Generally in case of personal loan, you need to repay your loan through EMIs spanning over a fixed period of time. And if you pre-pay any amount, a bank will charge you a prepayment fee that would be around 2 percent of the current outstanding principal amount. However, this is not the case with the gold loan. You can make payments in advance and close your gold loan account anytime you wish to without incurring extra charges.
- No EMI Payment: This is the most important aspect of gold loan which a bank will never offer you on a personal loan. As part of this facility, there will be no EMI option given to you which combines the interest amount plus primary compensation. This is because the lender already has your gold which is more expensive than the loan amount, so you only have to keep paying the interest amount and the lender will be more than happy to keep the loan account active for years. The reason behind this clause is to give you flexibility in hard times when you cannot pay the bank loan due to a medical emergency, loss of job, etc.
- The More the Value of Your Gold, the bigger the Loan Amount Will Be: Unlike personal loan where your loan amount depends on your salary, the gold loan amount will vary as per the amount of your gold. Let’s suppose you are earning Rs. 50,000/- per month then you will easily get a personal loan of about Rs 10 lakh for a period of 5 to 7 years. But in the case of a gold loan, you can normally expect the loan amount of up to 70 percent of the current market rate of your gold. And this amount can go up to 90 percent if you can pay the higher rate of interest. This is based on individual company schemes.
To summarize, a gold loan being a secured loan features a lower interest rate and also offers an additional flexibility to pay the amount as per your convenience. To know more about gold loans option, you can visit www.paisabazar.com.
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