Individuals may face emergencies like a medical exigency and might look for financial assistance at a short notice. At such times, it is feasible to opt for a short-term loan to cover the financing short-comings.
There are two easy-to-avail short-term credit options that one can avail of – personal loans and gold loans. Borrowers should consider the features and benefits of gold loan vs personal loans before applying for any one of them.
Most Indian households have access to a certain amount of gold. As a result, it is easier for them to opt for a loan by pledging their gold ornaments during a financial emergency. Apart from ease of access, there are other advantages of gold loan too such as –
● Low-interest rates – Gold loans are secured loans as you can avail them by pledging your gold ornaments as collateral. Hence, for lenders, the risk of defaulting is low as they can auction the gold to meet their dues. Consequently, gold loan interest rates can be economical compared to interest rates on a personal loan.
● Minimal documentation – Gold loans require a very nominal documentation process. Borrowers only have to provide KYC documents as their identity and address proof.
● Repayment flexibility – Borrowers can opt for a repayment tenor according to their convenience. They can choose to pay the principal at the end of the repayment tenor, and the interest in lump sum amount or monthly and so on.
However, despite its advantages, there are some complications associated with the process of availing a gold loan. They are –
● Applicants are required to submit their pledged gold ornaments with the lending institution for an evaluation process. The concerned authorities will decide the loan amount based on current market rates after a valuation and purity check of the ornaments. These procedures can be time-consuming, which can be a cause of inconvenience.
● Gold loans usually have a tenor of one year or less which can create a financial strain on borrowers while repaying the due amount.
● Applicants should also keep in mind that lending institutions will auction off the gold jewelry in case they fail to repay the loan in due time.
Alternatively, borrowers can consider personal loans which are a type of unsecured credit. Since it is unsecured, the borrower is not required to provide any collateral to avail of the funds. Other advantages of personal loans are as follows –
● Online application procedure – Unlike gold loans, one can easily apply online for a personal loan from NBFC. You should know how to apply for personal loans in detail to avoid the hassles of enjoying instant approval of your application. If you meet all the eligibility requirements and provide the required documents, the loan amount disbursed to you within a few days.
● Easy to meet eligibility criteria – While comparing a gold loan vs personal loan, borrowers should consider the personal loan eligibility criteria. The eligibility parameters for personal loans are straightforward, so borrowers can meet them with ease. These are–
1. Nationality – Borrowers should be a resident of India.
2. Age – They should be within the age of 23 to 55 years.
3. Occupation – Salaried individuals should be working in a private, public, or multinational company. Self-employed individuals should have a business operating for three or more years. If you have started working recently, you should know what makes a personal loan ideal for a young professional.
● Hassle-free documentation – Application for personal loans require minimal documentation. The essential documents that you need to submit include –
I. KYC documents such as Voter ID, PAN, Aadhar, passport, driving license.
II. Passport size photograph.
III. An employee ID card, Bank account statements for salary account, and salary slips for salaried individuals.
IV. Income tax returns and proof of business for self- employed individuals.
● Pre-approved offers – Some financial institutions and NBFCs such as Bajaj Finserv provide pre-approved offers on personal loans to facilitate a smooth and time-efficient application process.
Aside from personal loans, these offers can be availed on several financial products like business loans, credit cards, etc. you can check your pre-approved offers quickly by entering your name and phone number.
A borrower should weigh in the advantages and disadvantages of both gold loan vs personal loans diligently before reaching any decision. Apart from that, they should also consider factors such as their repayment plan, credit score, the amount required, rate of interests, and so on to see which loan is more suitable for them financially.