Personal Loan vs Gold Loan: How to choose the one that’s right for you
Brand Connect 19 May 2021
Personal Finance Brand Connect
In case of financial emergencies, your first instinct may be to liquidate investments like fixed deposits. However, by doing so, you will be compromising on your investment goals. Typically, with liquidity in mind, you can also think of availing of a gold loan, to raise a hefty sum quickly. However, losing an asset is like doing away with your financial safety cushion.
 
That is why, when handling a cash crunch, it may be better to apply for a collateral-free personal loan. To help you make an informed choice when it comes to choosing between a personal loan and a gold loan, here are a few important factors you can weigh in on. 
 
1. Convenience and eligibility 
 
A gold loan usually doesn’t come with anything but the most basic eligibility criteria and requires only KYC documents, since the deciding factor is usually the collateral itself. However, it may require you to visit the lender or receive a representative at your home to hand over the asset for verification. 
 
In contrast, the best part about a personal loan is that you can borrow money online from the comfort of your home. As a salaried individual, you just have to meet the lender’s personal loan eligibility criteria and submit the documents required for a personal loan online and get the money in your account after approval. However, if your income doesn’t meet the minimal limit or you don’t have stable employment, you may not be eligible for it. In such cases, a gold loan may be a viable option. 
 
2. Processing time
 
You can avail of a gold loan by pledging gold articles like jewellery, coins, and bars as collateral. Since this is a secured loan, it involves verification and evaluation of the security. However, in the case of an unsecured loan like the personal loan, you do not have to pledge any collateral and don’t have to risk a personal asset. This speeds up the application and approval process.  
 
However, when it comes to a personal loan, the lender verifies your credit report and checks your credit score to see if you are creditworthy. So, if you don’t have a high CIBIL score, applying for a personal loan may not be a good idea. This is because you may be charged a higher rate of interest, if your application is approved. Further, it takes at least a few months to improve your score and if you don’t have the time or resources to do so, you may need to opt for a secured loan. 
 
3. Loan amount
 
When considering a personal loan vs gold loan, it is very important to assess the amount you can get as a loan based on your needs. In the case of a gold loan, lenders calculate your loan amount based on the loan-to-value (LTV) ratio. Typically, the LTV in the case of a gold loan is 75% to 90%, which means, lenders offer up to 90% of the value of the gold you are pledging. However, the higher LTV, the higher will be the interest rate you are offered. This increases your cost of borr owing, and remember, you are already pledging a valuable asset.
 
On the other hand, you can avail of a high-value sanction from Rs.15 lakh to Rs.25 lakh with an unsecured loan at a competitive personal loan interest rate if you have the income to support repayment and meet the lender’s eligibility criteria. 
 
4. Flexible borrowing options
 
Another important factor to consider when weighing a personal loan vs gold loan is the comfort of borrowing. Usually, a gold loan offers you the loan amount upfront and in a lump sum. This requires you to start repaying EMIs in full right from the start. However, in case of unsecured loans like the Bajaj Finserv Personal Loan, you can opt for the Flexi facility. This allows you to borrow multiple times from your sanction, as per your needs, and pay interest only on what you utilise. Further, you can opt to pay only the interest component every month during the initial duration and reduce your EMIs by up to 45%*. This helps you free up your finances for urgent requirements. 
 
5. Tenor 
 
Usually, the repayment duration offered for gold loans is short, usually 1 year, with some lenders offering it for up to 3 years. However, you can repay comfortably in EMIs that don’t put pressure on your monthly finances when you choose a personal loan. This is because lenders usually offer a tenor from 1 to 5 years for this credit facility. 
 
Keeping these parameters in mind, you can weigh the pros and cons of a personal loan vs gold loan and proceed to apply for the one that you think is more suited to your needs. If you choose to go with the collateral-free option, consider the Bajaj Finserv Personal Loan. It comes with simple eligibility terms, offers up to Rs.25 lakh in just 24 hours from approval, and comes with a long tenor of up to 60 months. 
 
With nominal interest rates and minimal requirements for documents, it allows you to repay affordably and address your needs with ease too. To enjoy hassle-free and quick finance, check your pre-approved offer now.
 
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