In urgent financial situations, two options often come to mind: taking a gold loan by pledging gold, or opting for a personal loan based on one’s salary and CIBIL score. Both loan types are viable, but they come with different conditions. Let us explore which option might be more suitable.
Firstly, one should examine which option is cheaper. In simple terms, gold loans tend to be cheaper. This is because jewellery is provided as collateral to the bank, reducing their risk and consequently lowering the interest rate. Conversely, personal loans rely on one’s credit score, salary, and the company one works for, with no collateral involved, resulting in higher interest rates.
The speed of loan approval is another crucial factor. When urgent funds are needed, the promptness of the loan process matters greatly. Gold loans are typically faster; once the gold and ID proof are submitted, the jewellery is appraised, and the KYC process is completed, the funds are disbursed on the same day. While personal loans are also relatively quick to obtain, they require a thorough check of one’s credit score, which can take some time.
However, gold loans carry significant risks. The collateralised jewellery provides security for the bank rather than the borrower. If loan repayments are missed, the bank will proceed to auction the jewellery without hesitation, risking the loss of treasured items.
Personal loans, though not secured by physical assets, are not without risk. While jewellery remains unaffected, one’s reputation and credit profile are at stake. Failure to make EMI payments results in penalties and, most critically, a drop in one’s CIBIL score, making future loan approvals challenging.
Another notable difference is the tenure. Gold loans are typically short-term, requiring repayment within a few months to a maximum of three years. Personal loans, on the other hand, offer longer repayment periods, with smaller EMIs spread over five to six years.
Determining which loan to take depends on one’s financial confidence and needs. For those who require a small amount and can repay it within three months, a gold loan is advisable due to its lower interest rates. For those needing a larger sum and preferring to repay it gradually over five years, a personal loan is more suitable.
Finally, when considering any loan, it is crucial to look beyond the interest rate. One should enquire about any processing fees, insurance, or pre-payment charges for early loan closure. For gold loans, one should ask about the storage location for the jewellery and if prior notice will be given before an auction. One should also take care to read the documentation thoroughly before signing.
