Which Has a Low-Interest Rate, a Gold Loan or a Personal Loan?

There is no shame in researching loan options if you need financial assistance. Due to the numerous borrowing options, you may find it challenging to decide.

Buyers often utilise personal loans and gold as a source of fast cash since they don’t restrict how the loan profits may be used and because they pay out. Creditworthiness is still considered when applying for gold and personal loans, but less so than with higher-profile loans.

Gold Loan and Personal Loan

Gold Loan: When a gold loan is referred to by its other term, a “loan against gold,” you will have a clearer understanding of what it is. To create what is known as a secured loan, the borrower pledges their gold assets and is given a portion of the piece’s worth as the loan amount. The lender then gives the gold deposited back to the borrower when they have paid off the debt in full.

Personal Loan: A personal loan functions as a gold loan, except that it is an unsecured loan. Hence there is no need for collateral. The loan amount would often be smaller without a guarantee of repayment, and getting a loan approval will be more difficult.

The loan agent will review the applicant’s credit history throughout the application process for both loans, although gold loans are approved regardless of the applicant’s credit history.

What is a Low-Interest-Rate Personal Loan?

Personal loans with low-interest rates often have annual percentage rates (APRs) under 12%. Generally speaking, banks, peer-to-peer lending platforms, and credit unions provide personal loans as short-term loans. The money borrowed may be used to pay off credit card debt, make a large purchase, or even go on vacation, depending on who it is borrowed from.

There is usually a defined payment duration, often between three and five years. However, loan lengths vary depending on the lender. These are instalment loans, so you make monthly instalments to repay the money. It’s a good idea to determine your debt-to-income ratio, or DTI ratio, before submitting a loan application. This ratio is calculated by dividing your total monthly debt payments by your total gross monthly income. Low DTI ratio candidates are seen as more dependable borrowers by lenders.

Gold Loan Interest Rates 

By using gold or gold jewellery, coins, or other gold items as safety with a bank or lender, it is possible to get a gold loan to take care of urgent financial demands. After the loan is repaid, the gold items kept as proof are returned, and the bank charges interest on the amount borrowed. The gold loan low-interest rates start off at only 7.00% per year, despite being a secured loan.

Tips to Avail Personal Loan at Low-Interest Rate

The following are a few crucial factors to take into account to get a  personal loan   low-interest rate:

• Obtain and maintain a credit score of 750 or above.
• Look for offers of pre-approved, immediate personal loans from banks and NBFCs.
• Consult the banks or NBFCs with whom you already have loan and savings accounts.
• Keep note of lenders’ interest rate reductions over the holiday season.
• Check and compare personal loan offers from numerous lenders by going to online financial markets.

Let’s examine these two loan options to aid borrowers in making their decision:

Process Duration

To complete their loan application, borrowers of personal loans must submit their paystubs, ITR forms, and numerous other papers. Since it takes some time to verify these papers, personal loans take 2 to 7 days to disburse after the loan application. Some lenders claim that they can process personal loans quickly.

Sum Borrowed

Although some lenders claim they were accepted for loans up to Rs 40 lakh. Personal loan amounts often range between Rs 50,000 and Rs 20 lakh. This often depends on the loan’s term and the borrower’s ability to pay back.

In the case of a gold loan, the loan amount is based on the value of the gold used as proof since it is a secured loan. The RBI has, though, forbidden lenders from granting gold loans that are more than 75% of the gold’s value.

Mortgage Rate

Personal loan low-interest rates vary from 8.45% to 26% annually (p.a.). Depending on the loan length, the LTV ratio, and the kind of repayment option chosen, the interest rate on gold loans may vary from 7.25% to 29% per year. Long-term loans or loans with greater LTV percentages often have higher interest rates on gold loans. The difference in interest rates between a personal loan and a gold loan may not be significant for individuals with strong credit. However, gold loans may be a more affordable choice for those with bad credit.

Loan Duration

Personal loans usually have terms of one to five years, while some lenders offer terms of up to seven years. For gold loans, the term may be seven days to three years, with some lenders offering lengths of up to five years. Gold loans may be a more cost-effective option for clients who are certain they can pay back their loan within one or two years since longer loan terms result in higher interest expenses. For those searching for a bigger, longer-term loan, a personal loan low-interest rate would be a better choice.

Payment Alternative

EMIs, which include interest and principal components, are used to repay personal loans. On the other hand, gold loans provide a variety of repayment choices in addition to an EMI-based repayment plan. For instance, some gold loans allow borrowers to pay only the interest portion each month, leaving the principal amount to be repaid on the loan’s maturity date. In contrast, other loans give borrowers the choice of paying their interest portion upfront during the loan disbursal and the principal portion at the end of the loan term. Therefore, people experiencing short-term cash flow inconsistencies and repayment difficulties may benefit from the non-EMI alternative of gold loans.

Processor Charge

Personal loan processing fees range from 1% to 3% of the loan amount. In the case of gold loans, some lenders impose a fixed processing cost of as little as Rs 10, while others impose a fee ranging from 0.10% to 2% of the loan amount. Therefore, evaluate the processing fees when deciding between the two loan choices. You may calculate the cost of obtaining a loan by considering the processing fees.

Conclusion 

The borrower’s demands and profile will determine which option is best for them, between a gold loan and a personal loan. Personal loans will be more acceptable for people who need larger loan volumes for longer terms. Gold loans will benefit borrowers who need more repayment flexibility or have a low credit history and need to get personal loans at competitive rates.

Visit Piramal Finance for related posts if you want to learn more about personal loans low-interest rates and gold loans. You may look at their offerings as well.