Facing sudden expenses like weddings or medical bills? Turning to credit options - like gold and personal loans - can help you weather these expenses without dipping into your emergency fund.
While these are the most popular credit options, questions like whether a gold loan is a secured or unsecured loan and the risks of personal loans have plagued many potential borrowers.
A gold loan is a secured loan sanctioned against the gold assets (jewellery and coins) you pledge to the lender. Lenders follow RBI guidelines and offer up to 75% loan value. The pledged gold stays with the lender as collateral, which can be auctioned on default.
A personal loan is an unsecured loan, sanctioned without a collateral. Eligibility for the loan is based on your credit score, credit history, repayment capacity, employment status, and any other eligibility parameter set by the lender.
Gold loans and personal loans have pros and cons. Gold loans offer lower interest rates without credit score checks, but you risk losing assets. Personal loans offer unsecured funding with longer repayment windows, but defaulting on them can damage your credit score.
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A gold loan is a secured loan sanctioned against the gold assets one has to pledge with the lender. Unlike personal loans, gold loans require collateral.
The secured nature of gold loans makes their interest rates much more cost-effective. Personal loans come with a higher interest rate given the lender’s increased lending risk.
Gold loans cannot be sanctioned with gold collateral. The loan amount is calculated as a percentage of the current market value of the pledged gold. However, personal loans don’t require any collateral.
Gold loans don’t consider credit scores. A credit score of 750 and above is favoured for a personal loan. The higher your credit score, the better your chances at lower interest rates.
Gold loans offer low-interest, short-term credit, even with poor credit score. Risk: losing assets for missed payments. Personal loans: longer tenure, no collateral, but default affects credit score.