Indians spent Rs. 23,216.09 billion in the last quarter of 2021. It was more than Rs. 3700 billion more than the third quarter for the same year.
Higher spending means more money in circulation, which gives an upward push to the economy.
Often people need sudden cash to spend on unforeseen requirements.
It could be for a sudden business requirement, a last-minute planned vacation, new furniture for the house, or college admission fees for children.
Loans prove these much-needed funds. It can be confusing as to which loan to take during times of need.
Two commonly availed loans are personal loans and gold loans.
Here is a detailed comparison between the two to help you decide which loan is better.
Gold Loans
Gold loans are secured loans offered by various lending platforms. The borrower keeps his gold assets as collateral for these low-interest loans and can conveniently get his gold valuables back when he repays the loan and the interest applicable. There is no restriction on how the borrower uses the funds he gets from a gold loan.
Personal Loans
Personal loans are unsecured loans offered by banks and NBFCs. Personal loans do not require any collateral. It makes them convenient to get but expensive. Personal loan borrowers also have the freedom to use the loan amount as per their needs.
Which is Better: Gold Loan or Personal Loan?
Borrowers may get confused between applying for a gold loan and a personal loan when they need money. Remember, applying for too many loans at one time can harm your credit score. So it is crucial to analyse both the types of loans and know which one suits your needs. Here is a detailed comparison for both.
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Rate of Interest
Personal loans interest rates can go as high as 25% per annum. It makes personal loans very expensive. The high-interest rate on personal loans can be attributed to their unsecured nature. Since the lender does not have security on his money, he charges a high-interest rate to cover up for possible defaults from the borrower.
The Gold loan interest rate is lower since the customer pledges his gold possessions against the loan. Gold loans at Muthoot FinCorp start at only 11.99% under various loan schemes.
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Credit Score
Lenders are cautious while giving an unsecured personal loan. Therefore, they conduct detailed checks about a person’s job profile, income level, employer’s profile, and credit history. People with a low credit score generally find it tough to get a personal loan. On the other hand, gold loan lenders are more secure about the money they lend, and people who do not have a good credit score or no credit history can also get a gold loan easily.
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Documentation
Personal loans require detailed documents of the borrower. These include income proof, ITR slips, and personal identification proofs. With Muthoot FinCorp, customers need to submit only their ID proof and Address proof as documents to get a gold loan. Therefore, people with no running income or ITR details can also get a gold loan.
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Repayment Tenure
The loan repayment tenure is the time the borrower has to repay the loan and interest amount. Personal loan tenure is usually longer than a gold loan tenure and can go up to five years. The tenure for a gold loan is shorter and usually goes up to three years. A shorter tenure means the monthly instalment amount will be bigger than for a long-term loan. However, the longer the tenure, the more the cost of the loan for the borrower.
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Processing Fee
The lender charges a processing fee on the loan amount. The personal loan processing fee ranges between 0.5% to 2% of the loan amount. In contrast, the gold loan processing fee is much lesser comparatively. Muthoot FinCorp charges only Rs. 20, including GST charges, on selected gold loan schemes.
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Eligibility
The eligibility requirement of a gold loan is relatively easier than that for a personal loan. Anyone above the age of 18 years can get a gold loan. To apply for a personal loan, a person needs to have a regular minimum income, as asked by the lender. Customers can check their eligibility and the amount of loan they can avail of online using the gold loan calculator given on the lenders’ website.
In case the borrower wants to pay back the personal loan early, he has to pay a significant amount as foreclosure charges. Muthoot FinCorp charges zero foreclosure charges after three months of giving the loan, bringing down the overall cost of the loan for the borrower.
