For gold loans, the interest rates for people with poor credit profiles are generally lower than the personal loan options
As interest rates in the country have been on the rise since last year amid high inflation, borrowers are looking for options to get a cheaper loan. One such option can be gold loan, which is cheaper than a personal loan. India brought in about 706 tonnes gold from abroad to fulfil its demand. Here are details about gold loan and how it is cheaper than personal loan:
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A loan against gold is a debt instrument obtained from a lender in exchange for the precious metal. Lenders will usually provide you with a loan based on a percentage of the gold’s worth.
Gold Loan Vs Personal Loan: Difference
Interest Rates: For gold loans, the interest rates for people with poor credit profiles are generally lower than the personal loan options. However, when it comes to applicants with good profiles, the difference between the rates of both loan options may not be significant.
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Loan Amount: In gold loans, the amount depends on the valuation of the gold deposited as collateral and the lender’s loan-to-value. However, a lot depends on the applicant’s credit profile in case of the loan amount approval.
Disbursal Time: Gold loans are the quickest and are generally disbursed within hours of submitting the application, while personal loan disbursal usually may take up to 5 to 7 days.
Processing Fees: In gold loans, the general trend is of a processing fee of up to 2 per cent of the loan amount. In personal loans, the amount can range between 1 per cent and 3 per cent of the loan amount.
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Repayment Tenure: Personal loan offers a longer duration when compared to gold loans. The repayment tenure of a personal loan can vary and go up to 7 years, while gold loans generally come with a repayment tenure of only up to 3 years.
Purpose: The final purpose of a gold loan amount is not constrained, unlike the single objective of other secured loans like a home loan or education loan.
Rajesh Shet, CEO and co-founder of gold loan platform SahiBandhu, said, “Gold is not only a precious metal but also a valuable asset that can serve as collateral for a loan, especially in India where the organised gold loan market is over Rs 40,000 crore per month. When it comes to borrowing money, opting for a gold loan can be a wise choice, as it offers numerous benefits compared to a personal loan.”
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Shet said that with a gold loan, you can access quick funds without worrying about credit history, income, or employment status. This is not true in the case of personal loan. The loan amount is based on the value of the gold you pledge, which makes it a secured loan and, hence, the interest rates are usually lower for gold loan i.e., starts at 8 per cent per year than personal loans which can go as high as 20-25 per cent per year.
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He added that additionally, unlike personal loans, gold loans have flexible repayment options that allows you to repay the loan as per your convenience — single one-shot repayment, and monthly interest payment & principal repayment at loan closure. “Moreover, since gold prices are relatively stable and tend to appreciate over time, the value of your collateral may increase during the tenure of the loan.”
