Personal Loan Vs Gold Loan: Which is a better option for you?

If a longer tenure and EMI is the preferred repayment option, then a personal loan is a better option.

Amid this pandemic, people are facing financial problems, and when in need of money at short notice, both gold loans and personal loans are convenient options to go with.

Both the loan options help individuals go through a temporary cash crunch, especially due to salary cuts and job losses. Industry experts suggest opting for a loan when in need, but weight your options before choosing one. For instance, a personal loan can include some additional costs on the borrower, whereas gold loans are not only less expensive, they are also easily available.

When opting for a loan, if you are confused between the two options, firstly find out the tenure for which you need the loan. George Alexander Muthoot, MD, Muthoot Finance, says, “If repayment of the loan is within a few days or weeks, then gold loan is a better option. If a longer tenure and EMI is the preferred repayment option, then a personal loan is a better option.”

Hence, while making the decision and choosing between gold and personal loan options, checking the tenure of repayment, duration of the loan and the rate of interest are crucial factors. Gold loan does away the hassle of eligibility criteria, and anyone can leverage their gold ornaments and raise a loan instantly. Moreover, eligibility is universal — the person may be a salaried, business person, or homemaker. Any individual who is an Indian citizen above 18 years is eligible to avail a gold loan. Experts say, if there are no income-related documents, then a gold loan is a better option for an individual.

Praveen Kutty, Head-Retail and SME Banking, DCB Bank, says, “Culturally investing in gold ornaments with a rationale that it helps for a rainy day is ingrained in the Indian psyche! Gold ornaments are a handy and smart asset to use as opposed to a personal loan.” Various banks offer gold loans with an overdraft facility. The borrower pays interest for the loan amount utilized, unlike in the case of a personal loan where the EMI is payable on the entire disbursed loan amount.

Having said that, keep in mind while opting for a gold loan that gold has to be pledged with the bank or an NBFC, and as the borrower, you will have no access to the gold till repayment. Additionally, only gold ornament can be pledged. Other forms of gold like ETF and Bullion cannot be availed in case of a gold loan. The loan amount depends on the gold market value and the loan-to-value (LTV) ratio is used by lenders.

Amid the current crisis, gold loans are proving to be a good collateral especially for recovery largely for micro SMEs who have an urgent requirement of capital. One can estimate the approximate loan amount based upon the gold value and there is no need for income proof like in case of personal loans.