Personal Loan vs Gold Loans

Personal loans and gold loans are 2 of the most popular forms of loans in the country. While the former is an unsecured form of loan that is approved on the basis of the applicants credit scores and income, the other is provides money by mortgaging the applicants gold reserves. In India, gold is an important asset and people acquire it for reasons that are beyond just jewelry, they acquire it as an investment. But how good is a gold loan in comparison to a personal loan?rnA personal loan is taken by the borrower for a variety of purposes like marriage, purchase of consumer durables, a family vacations, home renovations and medical emergencies. A gold loan is often used for the same purposes but as mentioned earlier, requires the applicants gold as collateral. The idea of mortgaging it to meet immediate fund requirements seems to be a lucrative option. But a personal loan scores over gold loan in certain aspects like interest rate, tenor and charges.rnIn a gold loan, an amount of the applicants gold is locked in until the entire debt is repaid with interests. Being an emotionally valuable product, various individuals cannot accept the fact of locking in their gold with someone else, when it truly belongs to them. Additionally, the interest rate of gold loans, are lesser than personal loans in certain cases, but are dependent on the loan to value ratio. If the value of the loan asked for is 50% of the total amount of gold given as collateral, the rates are quite low. The higher the value of the loan, the greater the interest to be paid. Also, the gold is valued at less than the market value so that the lender is not effected in times of market fluctuations. rnIn comparison to this, personal loans do not require any collateral or mortgages and can easily be applied for with a good credit score as well as income slips. Additionally, the interest rates are lesser than credit card rates and the approvals are cleared in as low as 5 minutes. This helps applicants find it easier to apply for the personal loan at times they need to spend a high amount of money at a single go. With the lack of necessity in terms of collaterals, an applicant can actually not lock in any hard earned savings or assets to get the money. This ensures savings and security at both ends. rnAt the end, all this is subjective to the amount of money one requires for a loan as well as additional factors in terms of documentation and credit scores. A personal loan requires a very high credit score which a lot of people may not have. At these points a gold loan comes in handy as the gold collateral makes up for a lot of additional documentation issues that may be there for personal loans.