In present times there are various options for people looking to borrow money. There is wide range of loans available if you need money. Choice of the type of loan to be taken depends on various factors such as amount of loan, duration of loan and the type of security available. Currently, personal loans and gold loan schemes have emerged to be popular with people. However, before entering into any loan agreement, you should carry pout proper analysis of various options to see which one suits your requirements in the best way possible. Different loans have different covenants and are suitable for different situations.
These loans are considered to be the easiest ones to avail. There are not many formalities attached with the grant of this loan. However, the flip side is that these loans generally carry higher interest road. This is done to compensate for the absence of collateral security.
A personal loan generally carries an interest rate in the range of 16 to 22 percent. The actual rate of interest depends on the credit profile of the borrower. The tenure of the loan may extend from one year to three years. Again, this tenure also depends on the credit profile of the borrower and the amount of the loan. Personal loan generally does not require any collateral security, which is the reason why there is more stringent scrutiny of the other documents such as income proof. However, these formalities are generally completed within a couple of days. The banks also charge processing fee, which may be anywhere between 2 percent to 4 percent of the borrowing amount. While the loan is easier to get as it does not require collateral security, it is generally more expensive than other sources of loan.
A personal loan is good for certain situations including the time when the borrower needs money but does not have any asset to offer as collateral security. It is also good for people with good credit history as they can get relatively lower rate of interest. It is advisable to get this loan for the shortest possible tenure as the interest charges tend to accumulate over the period of time. Also, the borrower should try to borrow the least amount of loan possible.
The main benefit of the personal loan is that it can be raised for any purpose. Unlike, housing loan and vehicle loans, which are earmarked for specific purpose, personal loan can be used for any purpose by the borrower. Personal loan can be obtained easily if the borrower has long standing interaction with the bank or the financial institution disbursing the loan. In such cases, the borrower needs to submit minimal documentation and the loan can be processed within a short time period.
Gold has always been a favored metal for Indians. It is also considered to be a good investment avenue; however, until now it lacked liquidity. Selling the gold ornaments is generally a difficult and expensive method for obtaining funds for meeting short term requirements. In this situation, it is more prudent to go for a gold loan instead of selling the jewelry or gold coins.
Gold loans have become popular in the recent times. This is mainly due to the ease of obtaining these loans. Generally, banks are more interested in making loans which have some collateral security. Gold loans are available against gold jewelry such as rings, bangles or ear rings. It can also be availed against the security of gold coins and bricks. The government issues guidelines for gold loans and the banks and financial institutions are expected to follow those norms.
Gold loans have considerably lower interest rate than personal loans. The interest rate is generally between 13 to 15 percent. The banks issue loans up to 60 percent value of the gold security. These loans generally have shorter tenure. In most of the cases, the loan needs to be repaid within the year. These loans do not require any guarantor as the gold ornaments act as security against default. Banks process these loan applications in a quick manner. In normal circumstances, the loan can be disbursed within a day or two. In some cases, it may be authorized in a couple of hours.
Overall, the above analysis shows that both the loans may be suitable in different circumstances. If the borrower does not have any asset to use as collateral security, then in such cases, personal loan is the only option left. Also, if the loan is required for a longer duration then taking a personal loan is preferable as the gold loans have shorter duration. Gold loans are a judicious way to extract value from gold ornaments which generally lie around without any productivity. These loans are also good for meeting liabilities without selling the ornaments.