Since gold loans can be availed against gold assets, they have one of the quickest disbursals than other loan choices as the amount is instantly transferred to the borrower's account. In the matter of personal loans
, when the loan approval and disbursal are dependent on the loan applicant's credit score and history, the documentation that is required is more than what is needed while aiming for gold loans. Borrowers must submit their ITR documents, payslips, and other records to process their applications. Furthermore, verifying these papers usually takes time, and the disbursal of personal loans may take up to seven days.
Here are some differences to understand better:
1. Availability of collateral
Having stated that, while the security value is lower than the loan necessity, a personal loan could be the go-to option if the borrower is qualified for the loan amount they seek.
2. Quantity of loan
If the necessity of the amount is more, then the evaluation before disbursement of a personal loan is higher and more in-depth. Furthermore, specialists say in many cases, even after adequate diligence, the loan seeker may not get the expected loan amount.
In the case of a gold loan, the quantum is connected to the gold quantity. Hence there is no limitation on the upper limit if the borrower has collateral and the TAT for disbursement does not particularly go higher.
3. Credit rating
When an applicant's poor credit rating, they might not be authorized for a personal loan. Even if they obtain one, the interest rate will be considerably higher than those extended to applicants with good credit scores. In that case, a gold loan can be better than a personal loan.
4. Earnings stability
Getting a personal loan can be complicated if the applicant does not have a regular source of income or no earnings proof. It may also be tough for the self-employed or individuals with limited IT returns. In that case, industry specialists say, a gold loan can work better as the credit rating have a lower bearing on these loans.
5. Interest amount
The interest amount varies with each bank, even if it is gold loans or personal loans. The other aspect that impacts the interest amount is the loan period. This applies to both gold loans as well as personal loans. Yet, gold loan rates are comparatively lower than personal loan interest rates because it is a secured loan.
Personal loans are paid in the form of EMIs, comprising the principal and interest factors. But, gold loan companies provide a wider choice of repayment plans. Other than the usual EMI repayment method, NBFCs permit borrowers to repay their monthly interest amount except for the principal component to be paid on the maturity date.
In the Bullet repayment plan in a gold loan, a person can repay the full principal and interest amount at the end of the loan's period and need not service EMIs. The selection between a gold loan and a personal loan will depend on the borrower's needs and credit profile. Personal loans will be more appropriate for those requiring fewer loans without the struggle of pledging collateral and with good credit scores and income documentation.
One major disadvantage of taking out a gold loan is that the bank can sell your valuable jewelry if you cannot repay the loan. Hence, defaulting on the loan can put your ornaments at risk of being seized. Therefore, it can be an ideal choice for those who need a small loan for a brief period or are encountering an emergency. Business individuals experiencing financial problems can benefit from a gold loan, as they can pledge the same gold a lot of times to get a loan as required and benefit from flexible repayment periods and a lower interest rate. Yet, it is essential to only take out a gold loan if you are financially reliable and confident in your ability to repay it. Negligence in paying EMIs on time or defaulting on the loan will negatively affect your credit score. The bank has the right to sell your gold ornaments to retrieve the outstanding payment, which could result in losing your special family's gold. Though, if your loan necessity is high, you require a loan for a longer period, or you are skeptical of your repayment capacity and do not want to risk the gold, it is recommended to go for a personal loan.
Hence, conducting in-depth research is crucial, carefully examining product features and terms and conditions and ensuring that you fully understand the implications before taking a gold or personal loan. To know more, visit Loans Paradise today!