Why is Gold Loan a Better Option Than Availing Personal Loan?

Both personal loans and gold loans do not accompany any end-use restrictions, making them a convenient borrowing option to meet a wide range of financial requirements. However, while personal loans lack collateral benefits, gold loans come with more borrower-friendly features for being a secured credit.

Besides, there are several other valid reasons why individuals often regard a gold loan as a better borrowing solution than personal loans. It becomes more evident as the World Gold Council estimates that the Indian gold loan market is to grow at 15.7% CAGR and reach Rs. 4.617 trillion by the end of March 2022.

Top 7 Reasons Why Gold Loans are Better Than Personal Loans

Whether it is a personal loan or a gold loan, they both solve a variety of purposes. However, for the former, the absence of collateral means one needs to prove his/her creditworthiness to receive loan approval. However, for gold loans, this is quite the opposite. The presence of substantial collateral eliminates this need for satisfying creditworthiness.

Besides this fundamental difference, a loan on gold triumphs over a personal loan for the reasons below: 

1. Affordable borrowing costs

While both personal and gold loans can act as emergency cash cushions, the borrowing costs make the difference. The interest rates for loan against gold jewelry are comparatively lower as lending risk is less due to collateral. 

Since interest rates determine the affordability of a loan, individuals can ascertain reasonable borrowing costs by opting for a gold loan. However, this rate also depends on factors like loan amount, gold purity, current market price, inflation in an economy, etc. 

Individuals can save on interest payment by comparing different lenders and can settle for one that offers the most competitive deal. 

2. Credit history is not mandatory 

Unlike personal loans, lenders usually do not check the credit score of applicants before sanctioning gold loans. It allows individuals with a poor credit score or no credit history to avail substantial funds if they possess pure gold jewelry. 

In simple words, the credit score and history do not affect the gold loan eligibility. 

3. Relaxed eligibility criteria 

Since jewelry of high market valuation works as security for gold loans, eligibility for this credit is lenient. Individuals irrespective of their professional backgrounds are eligible to apply for a gold loan. They only have to be a residing citizen of India, and ages should range from 21 to 70 years. 

Since gold is a liquid asset and works almost as cash, lenders can ascertain the recovery of the funds in case of non-repayment.  

On the other hand, in the case of personal loans, individuals need to meet stringent eligibility criteria, and the final sanction depends on them. 

4. Flexible repayment facilities

When it comes to repayment, gold loans prove to be the most borrower-friendly with their unique options. Typically, individuals need to pay monthly installments to repay personal loans.

However, in the case of gold loans, borrowers can choose from repayment options below, besides the conventional EMI regime. 

• Pay the interest in lump sum initially and principal later at tenor’s end. 
• Opt for a periodical interest payment option and repay the principal before the tenor ends. 

It enables individuals to choose a repayment schedule as per their financial capacity. 

5. High loan corpus 

A stark difference between personal loans and a gold loan is the maximum credit amount. For personal loans, the principal depends on an applicant’s credit profile and eligibility. On the contrary, for a gold loan, the amount depends on the LTV a lender offers. RBI capped gold loan LTV at 75%. 

It means if an individual possesses gold worth Rs.10 lakh, he/she will get a maximum of Rs.7.5 lakh as a loan. For more convenience, borrowers can also use a gold loan calculator to know the loan amount they are eligible for. 

6. Negligible documentation 

Another perk of availing of a loan against gold is minimal documentation. Moreover, selected NBFCs like Bajaj Finserv also offer a doorstep facility where they send representatives to your address to collect basic gold loan documents like KYC.  

7. Quick loan processing 

It is also due to minimal documentation, gold loan processing time is less compared to personal loans. Additionally, after applying online, the gold appraisal to loan disbursal takes only a few hours. 

These are some common reasons individuals choose a gold loan over personal loans for short-term credit requirements. They can further maximize the benefits by choosing leading financial institutions that offer additional facilities like top-up loans, superior gold security, and many more.