When an urgent need of money comes to our life, there are certain things that come to our mind. First of all, we prefer to ask for a help from our family or friends. If this is not helping us out that the next option comes as going to financial institutions and asking for loans. The fastest disbursed loans that are available in the present market are- Personal Loan and Gold Loan. So here arises confusion. You are now in a new dilemma that which loan is going to be the best option for you. Studies have shown that there are some advantages of gold loan but personal loans are more worth taking over gold loan. Let's have an elaborated discussion over the topic and try to understand both gold loan and personal loan more clearly and advantages of a personal loan over gold loan.
What is a Personal Loan?
A personal loan is a kind of unsecured loan that's why serves the best in urgencies. These kinds of loans are very popular nowadays because of its easy availability and swiftness in disbursal. Personal loans presently have become a fully online process. Hence, such loans are also known as online personal loans.
What is a gold loan?
A gold loan is a kind of loan which bank or financial institutes will grant to you by keeping your gold as collateral. This is a kind of secured loan. This is also a short-term loan and the loan amount is disbursed as quickly as any other online personal loan.
How personal loans are more advantageous:
i) High Margin- Personal loans serve you the best when you need a little bit more than the value of your gold. Banks offer you a loan of up 75% of the value of your gold. This means the remaining 25% value goes towards bank’s margin and cannot be monetized. That clearly means that you are not going to get the total market value of the gold which you are keeping as collateral. When you know that your need is more than the 75% value of the gold than the personal loan is will surely be going to help you out.
ii) Short Tenure- Gold loans come with a tenure as short as 12 months. But it may vary lender to lender for a little difference. Whereas, personal loans come with a tenure of 2 years to 7 years. It is always well understood that a short tenure means a higher monthly payment. So you have to be sure enough to service the larger EMIs. But in case of a personal loan, the EMI will be smaller. Hence you can repay your loan without having any financial stress and disturbing your monthly budget.
iii) The Asset at Risk- In Indian society gold is not only a metal but associated with many emotions. Gold has always played a vital role in the lives of Indian women. While going for a gold loan, your gold which was may be in form of ornaments, coins or bars are to be kept with the lender as a security. It is a secured loan and your asset is always at risk of liquidation by the lender if you are not able to repay the gold loan on time. If your repayment tenure exceeds, then the lender will put an auction for the gold and recover the amount which was given as loan. But in personal loan there is no risk of such asset loss.
iv) Limitation on Loan Amount- The loan amount which you are going to get depends on the purity and the market value of the gold which you will be kept as security. Whereas, in case of personal loan, the loan amount depends on your repayment capability. If you have a good credit history and your income in fair enough for servicing EMIs, you can easily avail a loan amount of your wish.
v) Gold Loan is an Offline Process- There are times when circumstances don't allow you at all to be physically present in banks or any other financial institutions for applying for a personal loan. In those situations, online loans are the only option left with you. Financial institutes like Finance Buddha has come up with online loans where you are never needed to be present physically for making your loan approved and disbursed. In such situations, you can't go for a gold loan as it needs to be present in financial institutions to avail a loan against your gold.
vi) Repayment Depends on the Market Value of the Gold- If you take a gold loan today and the price of the gold falls in the future to such an extent that the Loan-to-Value ratio goes for a toss, the lender might ask you to give some additional gold or part-pay the loan amount to maintain the required LTV. This is not the case with a personal loan, since it's a non secured loan.
Thus, personal loans and gold loans both will serve you in fulfilling your urgent needs of money. Just be alert, disciplined and know both of them very well before opting any one.