Because gold loans as well as personal loans have almost the same interest rates (gold loans have rates between 8% and 26%, while personal loans have rates between 9% and 24%), quick loan disbursement, and no restrictions on how the money can be used, many borrowers, especially those who own gold, find it hard to choose the right type of loan for their specific financial needs.
If you’re confused, too, keep reading; we’ll draw some parallels between the two to help you understand.
Increased potential loan size in gold loan
Gold loans are often more generous than personal loans when it comes to the maximum lending amount. Most loan providers set a cap of Rs. 40 lakh for unsecured loans like Navi personal loan, but borrowers can borrow as much as Rs. 1.5 crore in gold loans. If you need access to a higher loan amount quickly, a gold loan is the most practical solution because of the added freedom it affords. Loan amounts as low as one thousand rupees are available for gold loans, whereas the standard minimum for a personal loan is five thousand rupees.
Putting lesser emphasis on personal credit score
Unlike 10 lakh personal loan, gold loans are fully secured against the gold ornaments that are pledged, so they may be disbursed quickly without putting undue strain on the borrower’s credit. Thus, even in dire financial straits, customers with poor credit can access loans using this service. If the debt is not repaid, the lender might sell the ornaments to cover the outstanding payment. When deciding whether or not to grant a loan, a lender will look at a number of factors, including the applicant’s credit history and score, to gauge the risk and likelihood of the applicant defaulting on the loan in the future while repaying the huge amount of money involved, along with the interest that is applicable.
In contrast, a borrower’s credit history is given heavy consideration by lenders like Navi personal loan while deciding whether or not to approve a personal loan. The loan amount, interest rate, loan term,etc of 10 lakh personal loan app’s service are all based on the borrower’s credit score and repayment history. If the prospective borrower has a poor credit score, the lender may choose to either not approve the loan or approve it but with very high interest rates. The borrower would have no leverage to negotiate better terms, and thus would have to take whatever was offered, including the applicable interest rate and other terms and conditions, if their credit score was low.
Reduced paperwork requirements and more payment flexibility
It’s true that gold loans have less paperwork requirements than other types of finance. Most lenders merely require identification and residency verification as minimum requirements for extending credit. But since 10 lakh personal loan is more of a risk to the lender, they require more paperwork than gold loans. A personal loan application will typically need to be accompanied by papers showing the borrower’s identity, income, bank account, etc.
Many banks and credit unions provide gold loans with a variety of flexible repayment options, such as paying only the interest each month or all at once at the end of the loan’s term, or “bullet repayment,” in which the principal and interest are both paid back at the end of the loan’s term.
On the other hand, this option is not yet available for personal loans. Lenders often need monthly EMI payments that include principal and interest to be made in order to repay a personal loan.
Longer availability of tenure for personal loan
Comparatively, the maximum borrowing period for a 10 lakh personal loan is longer than that for a gold loan. The average loan term for a gold loan is three years, whereas the average loan term for a personal loan is five years (and can be as high as seven years from some lenders). A lower EMI over a longer period of time makes it easier on the borrower’s monthly budget and cash flow to make the loan payments on time.
No branch visit required for personal loan nowadays
Because the borrower must bring in, process, and analyse the gold ornaments offered as collateral, the borrower must make at least one trip to the branch of the concerned lender in order to get a gold loan. After the gold was verified for purity and its value was determined, only then would the lender decide how much of a Navi personal loan to give. If the lender doesn’t happen to have any branch in the area, which is especially common in rural and semi-rural areas of the country, it may be difficult for some borrowers to obtain loans from the institution.
The process of getting a Navi personal loan has gotten much more hassle-free since the rise of online financial platforms. After visiting their site, borrowers can compare available lending options and apply with the one they feel is the best fit. The other steps of the process, from the submission of the application to the disbursement of the loan amount, are initiated and carried out wholly online. The borrower can apply for a 10 lakh personal loan and have the funds paid into their account without ever having to set foot in a lending institution’s office.
While there is no single answer that fits everyone’s financial life, the choice regarding a personal loan vs gold loan should ultimately be made based on the specific requirements and circumstances of the individual borrowers. Personal loans are typically the best option for borrowers who need money over a longer period of time like 5-7 years. Whereas gold loans are usually for 3 years maximum, and the amount of loan you would get depends a lot on your gold’s valuation.
So overall, it boils down to your own financial health, EMI payment capacity, amount requirement, tenure etc. So choose wisely, else you may end up harming your finances in more ways than one.