A personal loan is an unsecured credit offered by various banks. Whereas, a gold loan is a type of secured loan. A borrower needs to keep his/her gold ornament(s) as collateral to avail a gold loan.
If you are confused between these two types of loans, then read this article.
Nowadays, banks provide various loan options to people who want to borrow money. However, a borrower needs to be cautious while making a choice. Personal loans can be availed quickly, which can be crucial in case a borrower needs to pay for a financial emergency. Similarly, gold loans also offer quick disbursal. Therefore, it can be difficult to choose between a gold loan and a personal loan.
Here are some crucial factors that you need to keep in mind while selecting between the two options-
What is a Gold Loan?
As mentioned earlier, a gold loan is a secured credit that can be availed by keeping your gold (in any form such as coins, ornaments, etc.) as collateral. Gold loans are a great option for short-term fund requirements.
Here are some advantages of borrowing a gold loan-
- No Requirement of Credit History
Generally, banks don’t consider the borrower’s credit history. This is because the borrower must keep his/her gold ornament(s) as collateral to borrow a gold loan. Therefore, the bank can recover the money even if the borrower fails to repay the loan.
- Lower Interest Rate
Since a gold loan is a secured loan, its interest rate is comparatively lower than a personal loan. This is one of the main reasons why many individuals prefer gold loans.
- Minimal Documentation
The documentation process of a gold loan doesn’t require a lot of effort. By providing identity proof, address proof, etc., a borrower can avail a gold loan. However, a bank will check a borrower’s monthly income, work experience, age, credit score, and type of employment before providing him/her with a personal loan.
What is a Personal Loan?
A personal loan is an unsecured loan. It is a great option for people who want to pay for a financial emergency or require money to fund a big-ticket expense. Furthermore, a personal loan is an ideal option for a person who doesn’t own gold jewellery.
Here are some advantages of availing a personal loan-
- No Requirement of Collateral
This is one of the most crucial advantages of a personal loan. A borrower isn’t required to pledge any asset in order to avail a personal loan.
- Can Be Used for Various Purposes
Most types of loans can be availed for a specific purpose. For instance, a home loan can be availed to purchase or construct a house. However, a personal loan can be borrowed for various purposes. A borrower can take a personal loan to pay for a medical emergency, fund a vacation, etc.
- Quick Loan Disbursement
If the bank is happy with a borrower’s application, then it can disburse the loan amount in a few hours.
Keep the aforementioned points in mind while choosing between a gold loan and a personal loan. This way, you can decide which type of loan will be a better option for you.