Gold Loan Vs Personal Loan: What To Choose For Meeting Your Needs!

Gold Loan Vs Personal Loan (Last Updated On: November 3, 2022)

When financial crises occur, our mind suddenly goes into survival mode, where our first reaction is to find easy, quick ways to sail over the condition. You wouldn’t be alone in thinking about selling investments like fixed deposits. However, you will forgo your investment objectives if you do this. One of the ways to get out of the cash crunch is availing federal bank gold loan or gold loan from any bank or financial institution.  With gold loan, you will be able to raise a sizeable sum of money, and federal bank gold loan interest rate is reasonable for you to repay your loan easily. But then again, is it worth it to pledge your asset? Due to this reason, it could be preferable to apply for a personal loan where no collateral is required. Here are a few crucial aspects you can consider while deciding between a personal loan and a gold loan that will assist you in making an informed decision.

  1. Convenience: To apply for federal bank gold loan, it is the collateral that typically determines eligibility for your gold loan application. Apart from that, only the most basic requirements you need to fulfill, such as submitting KYC documents. But you might have to go to the lender in person or have a representative come to your house to deliver the asset for inspection. A personal loan, on the other hand, has the advantage that you may apply for one online from the comfort of your home. As a salaried individual, all you need to do is meet the lender’s requirements for personal loans, submit the necessary paperwork online, and wait for the loan to be approved before receiving the funds in your account. However, if your income is below the minimum threshold or you don’t have a steady job, you could not be eligible, and in those cases the gold loan is a better option for you. 
  2. Processing period: By using gold jewellery, coins, and bars as security, you can apply for a gold loan. Since federal bank gold loan is a secured loan, the security must be verified and assessed. However, with an unsecured loan, such as a personal loan, you are not required to put any personal property at risk or pledge any form of security. The difference between the two will be shown in the speed of the application process and federal bank gold loan interest rate and personal loan interest rate at the time of sanctioning of a gold loan.  For a personal loan, however, the lender validates your credit report and examines your credit score to determine your creditworthiness. Therefore, applying for a personal loan may not be a good option if your CIBIL score is low. This is due to the possibility of a higher rate of interest. 
  3. Loan amount: It’s crucial to determine how much you can borrow based on your circumstances when deciding between a personal loan and a gold loan. Lenders determine your loan amount for a federal bank gold loan based on the loan-to-value (LTV) ratio. Lenders typically provide up to 90% of the value of the gold you are pledging when a gold loan is involved. This ranges from 75% to 90% LTV. However, the federal bank gold loan interest rate you are offered will increase as LTV increases. As a result, your cost of borrowing rises. However, keep in mind that you are already pledging a valuable asset. On the other side, you can obtain a high-value sanction with a value of between Rs. 15 lakh and Rs. 25 lakh with an unsecured loan provided you have the income support repayment and meet the lender’s eligibility criteria. 
  4. Flexible borrowing options: The convenience of borrowing should be taken into account when comparing a personal loan to a federal bank gold loan interest rate. A gold loan typically provides you with the loan amount upfront and in one single transaction. This calls for you to start making full EMI repayments as soon as possible. However, you can choose the Flexi feature for unsecured loans. Under this, you can borrow from the amount sanctioned to you as needed and just pay interest on the money you actually use. Additionally, you can choose to pay only the interest component each month for the first few months, which will lower your EMIs. This enables you to free up cash for pressing needs.
  5. Less emphasis on your credit score: Gold loans are quickly released without putting much attention on the borrower’s credit score because they are fully secured against the gold pledged. This enables consumers with bad credit to obtain loans when they’re in need, and other lending options aren’t available. If the borrower defaults repeatedly, the lender may sell the promised jewellery to recoup the unpaid debt. To assess the danger and chance that the borrower will default on the large amount owed, as well as any related interest, in the future, the lender may place more importance on the applicant’s credit score only if the federal bank loan amount is on the higher side. On the other hand, a credit score is a crucial factor that lenders consider when assessing a borrower’s request for a personal loan. A personal loan’s loan size, interest rate, tenure, and other terms and conditions are determined by the borrower’s credit score and ability to repay the loan. The lender may reject the loan application or grant it with a higher interest rate if the borrower has a poor credit rating. Due to the borrower’s limited ability to negotiate due to a low credit score, they would be forced to accept the interest rate and other terms and circumstances imposed.

Lastly, which one should you pick?

The borrower’s demands and profile will determine whether to choose a personal loan or a federal bank gold loan entirely. You might choose to apply for a gold loan if you want to have more repayment flexibility, have bad credit, require a larger loan amount right away, and are okay with repaying it in as little as three years, and the federal bank gold loan interest rate seems apt for you to repay. Personal loans would be a better choice for applicants with good credit scores, steady income, and longer payback terms. A gold loan might be a sensible decision if you want to improve your credit score or need money for a limited time period, such as six months to a year. You can borrow money from it at a lower interest rate. On the other side, you need a lengthier repayment period, up to five years, if you have a long-term financial need. A personal loan would be a preferable option in such cases.

About the Author: John Abraham

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