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Why gold loan is BETTER than personal loan
Have you been looking around for a personal loan for some immediate requirement? If yes, then I would suggest you to go for gold loan instead of personal loan.
Personal loan is a loan given by banks and other private lenders to meet any kind of personal need like marriage, buying an electronic item or anything else.
Gold loan also has the same intention of meeting any of your expenses.
The difference between the two is that in case of personal loan, you do not have to give any kind of collateral whereas gold loan is backed up by your gold.
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Courtesy: Am22tech.com
Why gold loan is BETTER than personal loan
What is the difference in cost?
Since personal loans are given to you without any collateral, banks need to do a scruitny of your income proof documents and hence charge you a processing fees. This processing fees generally varies from 0.5 per cent to 1 per cent of loan amount.
The benefit with gold loans is that you don't need to submit any income proof as such. Most private gold loan providers do not ask you for any income proof. Although banks operating in this field may need some documentary proof.
The real benefit is the processing fees though. Major gold loan providers like Muthoot finance do not charge any processing fees. You just need to deposit your gold and you get the loan.
The whole process does not even take more than 15 minutes. Deposit gold, sign some documents and walk away with cash.
Please do keep in mind that banks may charge processing fees on gold loans but if you can negotiate, it can be waived off easily.
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Why gold loan is BETTER than personal loan
Any other benefit?
1. Lower interest rates
If you closesly look at the gold loan interest rates in market, you would find them hovering around 12 to 15 per cent per annum whereas the personal loan rates range from 18 per cent to 24 per cent.
A stagerring difference of six per cent between the minimum interest rates places gold loan in my preffered list too.
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Why gold loan is BETTER than personal loan
2. Pre-payment charges
Generally you need to repay your loan using a fixed EMI spanning over a fixed period of time. And if you pre-pay any amount, banks charge you a pre-payment fees of about two per cent of current outstanding principal amount.
This is not the case in gold loan. You can repay any amount and close your loan account anytime. I have personally done this when I took gold loan from.
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Why gold loan is BETTER than personal loan
3. No EMI, service only interest and enjoy the loan facility
This is one of the features available only in gold loans. Since the lender has the gold deposit whose value is more than your loan amount, they are able to offer you the no EMI option. That is, you don't need to pay a fixed amount of EMI which is a combination of interest amount plus principal repayment.
Only keep paying the interest amount and the lender will be more than happy to keep the loan account active for years.
Well, this is of course not a good thing to do as you will never be able to get your gold back unless you give back the principal amount of your original loan. But yes, it does offer you a flexibility in terms of minimum commitment in hard times when you are out of job of need to pay some emergency medical bills.
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Why gold loan is BETTER than personal loan
How much amount do you get in gold loan?
The loan amount is dependent on your salary in case of personal loan and on the value of gold in case of gold loan. So, these are two different perspectives.
Let's say that you are earning Rs 50,000 per month, then you would be eligible for about Rs 10 lakh of personal loan for a period of about 5 to 7 years.
Contrast this with the gold loan option where the amount of loan that you can get depends on the value of gold you possess. Traditionaly, India has been the biggest consumer of gold and you can find it in your home easily.
You can normally expect the loan amount of up to 70 per cent of current market value of your gold. And this amount can go up to 90 per cent if you are ready to pay higher rate of interest. This is based on individual company schemes.