Don’t have enough funds for your child’s education or your ailing relative’s treatment? Are you looking for a way to finance your purchases, but are unsure whether to avail a gold or a personal loan? This post will help you understand which one will be the right choice for you.
Gold loans and personal loans are among the most popular means of borrowing money to aid during financial emergencies. Quite often, many people are confused about which type of loan to choose. Both gold and personal loans have their respective pros and cons.
Given below are some important things that you should keep in mind while choosing between the two.
1. Borrowing Limit: There is an upper and lower limit on all loans, which varies from one lender to another. However, usually, gold loans have a lower higher limit as compared to personal loans. Thus, if you need a loan of a higher amount, a personal loan may be the preferred choice. On the flip side, gold loans usually also come with a minuscule borrowing limit. With some lenders, you can take gold loans of as low as Rs 3000.
2. Tenure of Loan:A loan against gold is generally a short-term loan with a tenure of up to one year. On the other hand, a personal loan can have a tenure of as long as five years. If you are borrowing only to meet temporary financial needs, then a gold loan could be a preferable option. For borrowing higher amounts with a slightly longer tenure, you can opt for a personal loan.
3. Collateral: In case of a gold loan, gold has to be held as collateral while availing the loan. If you are willing to keep your assets with the lender (bank) as collateral, then you can opt for a gold loan. A personal loan does not require you to keep your assets as collateral with the bank to avail the loan. This feature makes it a preferred option over other types of loans.
4. Rate of Interest: Being a secured loan,the rate of interest on gold loans is usually lower than a personal loan. However, the interest rate could depend on various other factors as well, such as your credit score, your income, etc.
5. Eligibility Requirements: Personal loan requires the borrower to meet certain eligibility criteria. The lender will check your income, age, work experience, type of employment, and credit score before approving the loan. On the other hand, a gold loan requires lesser minimal eligibility criteria. You only need to be 18 years or above in age and the legal owner of the assets which you wish to hold as collateral in order to avail the loan. Most lenders will accept only gold of 18 carrots or above as collateral. Moreover, lenders usually give loans up to 75% of the market value of gold.
Avoid Debt Trap
While both these loans are equally useful depending on your financial requirements, your priorities, and the assets that you own, it is essential to take these only when absolutely necessary. Overindulging in these loans could lead you into a debt trap which can cost you money and lower your credit score as well. Keep the above points in mind while deciding which loan would be more beneficial to you and choose the right lender based on your requirements.