5 Reasons Why Gold Loans Are Better Than Personal Loans

How gold loans outshine personal loans

A Gold Loan is a loan which is secured by gold, jewelry, or other precious metals. This increases the lender’s security, which in turn, increases your chances of getting a loan. Gold loans are a great choice for funding personal expenses. The interest rate is lower, and the loan amount is higher than a personal loan.

Personal loans are a great way to take care of an emergency expense. However, if you have bad credit, or just don’t have a lot of money to put down, personal loans can be a challenge to get. If you think you need a personal loan, but don’t have a lot of money to put down as collateral, a gold loan might be the answer you’re looking for. Here are the top 5 reasons why gold loans are better than personal loans.

1. Documentation and Processing Time

Borrowers are not required to provide any collateral for personal loans; however, a gold loan is approved with gold holdings as collateral. People will apply for a gold loan or a personal loan when they are having financial difficulties because lenders can process them quickly. However, they must also submit supporting documentation with their loan application, such as a proof of income or address. Gold loans are more effective at disbursing money than personal loans, despite the fact that this is a time-consuming process in and of itself.

2. Cost of Borrowing

When it comes to personal loans, banks are not given any security. The lending institutions then carefully review the applicant’s income verification documents. They consequently assess minimal processing fees for personal loans. Personal loan processing fees typically range from 0.5% to 1% of the loan amount. Borrowers who apply for a gold loan do not need to provide documentation proving their income because they are using their gold holdings as security. This calculation excludes processing expenses.

3. Loan Term

When lenders, whether banks or non-bank financial companies, receive personal loan applications, they assess the income of proof papers in the absence of collateral. They also conduct extensive due diligence to ensure that an applicant has adequate repayment capabilities. This is a time-consuming process that may delay the loan. In contrast, the gold loan procedure is straightforward. Borrowers sign various forms and provide collateral in the form of gold. After that, the loan amount is approved.

4. Options for Flexible Repayment

A personal loan or a gold loan will allow the borrower to repay their loan through EMI, which will allow them to avoid most repayment restrictions. However, repayment options for gold loans are more flexible than those for personal loans. Because secured loans guarantee on-time payments, they are more accommodating to clients. Borrowers of gold loans can choose from a number of repayment options.

The borrower can simply select the standard EMI option to repay a gold loan. They can also decide to pay back the interest over the course of the loan and the principal when the mandate is over. At the end of the term, borrowers have the option of paying both the loan balance and the interest in one lump sum. Gold loans offer ways to improve your capacity for repayment, giving you the best chance of repaying your loan.

5. Lesser Interest Rates

It is evident that gold loans have lower interest rates when compared to personal loans. A personal loan is approved at rates between 16 and 22%, whereas a loan for gold is approved at rates between 11 and 13%.

This implies that obtaining a gold loan is less expensive for the borrower than obtaining a personal loan. Due to this, repaying gold loans is a little less difficult than repaying personal loans, even if they were built for the same amount of money.

When is it best to apply for a gold loan?

If you need money for urgent personal expenses and want to repay the loan quickly, a gold loan is a good choice. There are no restrictions on how you can use the loan money and what to spend it on, so these expenses could be for organizing a wedding, paying for a child’s education, paying for unexpected medical costs, remodeling your home, or even taking a vacation.

When applying for a gold loan, it’s also crucial that you have a solid track record of making payments. In order to avoid losing your family’s jewelry and having your credit score suffer, you must be ready and able to pay back the loan in full by the due date. This will make it challenging to get loans in the future.

How do I pick a lender to get a gold loan from?

You should exercise caution when approaching potential lenders. Borrowing from a nationalized bank, a reputable private bank, or an established NBFC is safer. Many of them provide gold loans, and you can trust that your jewelry will be safe while it is in their care. Consider reputable NBFCs as an alternative because they are known for specializing in gold loans.

Also Read: Top 5 Sterling Silver Diamond Bracelet for women

Other NBFCs might offer favorable conditions for the gold loan, but they might not be well-run or financially stable. Some of them might abruptly shut down and take your jewelry with them. You run the chance of losing all of your jewelry and having no way to replace it right away. Since gold is associated with family jewelry in India, it has an emotional and social component. It is therefore best to do your research and stick with reputable banks and NBFCs.

Conclusion

Gold loans are a better choice than personal loans for funding big-ticket items, like a car or home renovation. They are more flexible than personal loans, which means you can get a gold loan without having to meet strict eligibility requirements. The interest rate is lower, and the loan amount is higher than a personal loan. This makes a gold loan a better choice for funding big-ticket items than a personal loan.