Six things to consider before choosing a personal loan or gold loan

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NEW DELHI: Personal or gold loans two convenient borrowing options that help people meet urgent financial needs. The borrower can choose between the two depending on which functions are best for them.

In this article, we compare the features of a personal loan and a gold loan available to clients.

The value of the loan

Personal loan amount usually ranges from 50,000- 15 lakhs, with some creditors claiming to pay more 30 lakhs in 40 lakh. The creditors’ eligibility for a loan primarily depends on the applicant’s ability to pay and the term of the loan.

In the case of a gold loan, the loan amount primarily depends on the valuation of the gold deposited as collateral and the loan-to-value (LTV) ratio of the lender. The LTV ratio of a gold loan can vary widely depending on the lender, the selected repayment option, the applicable regulatory limit, etc. RBI has set a regulatory cap of 75% for the LTV ratio of the gold loan.

Interest rates

Gaurav Aggarwal, director of Paisabazaar.com, said: “The interest rate on an individual loan usually ranges from 10% to 24% per annum, depending on the credit profile of the lender and the applicant. The interest rate on a gold loan can vary from 7.00% to 29% per annum, depending on the lender’s assessment of the applicant’s risk, the loan term, the loan amount and the selected repayment option. “

Some lenders also tend to charge a higher interest rate for a larger loan amount. Although the difference in interest rates on both of these loans may not be large for those with a good credit profile, the interest rate on a gold loan is usually lower than on a personal loan for those with a bad credit profile.

Repayment of ownership

The term for a personal loan is usually between 1 and 5 years, with some lenders offering a maximum term of up to 7 years. The maturity of the gold loan is generally shorter, with the maximum holding period for most lenders being only 3 years. However, some gold lenders offer slightly longer tenure periods, around 4-5 years.

Disbursal time

When submitting personal loan applications, borrowers must submit their ITR forms / payrolls and other documents to process the application. Since it usually takes some time to check these documents, it can take up to 2-7 days for personal loans to be issued. However, some lenders say they offer faster personal loans, especially in the case of pre-approved loans.

Gold Loan is one of the fastest payments among all loan options, usually paid within a few hours after applying for a loan. The appraisal process is primarily based on the quality of collateral, with little or no emphasis on the creditworthiness of the borrower.

Processing fee

Aggarwal said: “Personal loan processing fees are usually between 1% and 3% of the loan amount. In the case of gold loans, these fees are usually up to 2% of the loan amount, with some lenders charge fixed fees starting at 10 and onwards. Therefore, loan applicants must consider processing costs when obtaining the actual use value of the loan. ” Aggarwal went on to say: “Even a small difference in the rate of processing fees can significantly affect the total value of your loan, especially in the case of a large loan.”

Bad credit profile

The unsecured nature of personal loans prompts lenders to exercise caution. They primarily approve personal loan applications after taking into account the applicant’s credit ratings, monthly income, job profile, employer profile, etc. Some lenders have also begun to set the interest rate for personal loan applicants based on the credit profile.

Gold loans, on the other hand, are fully collateralized loans backed by adequate collateral. This allows lenders to sell pledged gold in the event of a borrower’s default. Consequently, lenders tend to take a less stringent approach to lending, approving gold loans to those with poor credit ratings and credit profiles.

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