NEW DELHI: Personal or gold loans are two convenient borrowing options that help people meet urgent financial needs. A borrower can choose between the two depending on the features that suit him the best.
In this article, we compare the features of personal loan and gold loan available to clients.
Amount of the loan
The amount of the personal loan generally varies from ₹50,000- ₹15 lakh, some lenders claiming to disburse a higher amount of ₹30 lakh to ₹40 lakh. The eligibility of the loan amount set by the lenders is mainly based on the repayment capacity of the applicant and the duration of the loan.
In the case of a gold loan, the loan amount mainly depends on the valuation of the gold deposited as collateral and the loan-to-value ratio (LTV) of the lender. The LTV ratio of the gold loan can vary considerably depending on the lender, the repayment option chosen, the applicable regulatory limit, etc. The RBI has imposed a regulatory cap of 75% on the gold lending LTV ratio.
Gaurav Aggarwal, Director of Paisabazaar.com, said: “The interest rate for personal loans typically ranges from 10% to 24% per year, depending on the lender and the applicant’s credit profile. The interest rate of the gold loan can vary widely between 7.00% and 29% per annum depending on the risk assessment of the loan applicant by the lender, the duration of the loan, the amount of the loan and the option. of reimbursement chosen. “
Some lenders also tend to charge a higher rate of interest for the higher loan amount. Although the interest rate difference of these two loans might be small for those with a good credit profile, the interest rate on a gold loan generally tends to be lower than that on a personal loan. for those with a bad credit profile.
The term of a personal loan typically ranges from 1 to 5 years, with some lenders offering a maximum term of 7 years. The repayment term of the gold loan is generally shorter, with a maximum term of up to 3 years for most lenders. However, some gold lenders offer a slightly longer term of around 4 to 5 years.
When submitting personal loan applications, borrowers are required to file their RTI forms / payslips and other documents for their application to be processed. As verifying these documents tends to take a long time, personal loan disbursement can take up to 2-7 days. However, some lenders claim to offer faster disbursement of personal loans, especially in the case of pre-approved loans.
The Gold Loan has one of the fastest disbursements of all loan options, usually disbursed within a few hours of submitting the loan application. The assessment process is primarily based on the quality of the collateral with little or no emphasis on assessing the borrower’s credit profile.
Aggarwal said, “Personal loan processing fees typically range from 1% to 3% of the loan amount. In the case of gold loans, these fees generally tend to be up to 2% of the loan amount, with some lenders charging a fixed fee from ₹10 and more. Therefore, loan seekers should take into account the processing fees while calculating the actual cost of obtaining a loan. Aggarwal added, “Even a minor difference in the processing fee rate can have a significant impact on the overall cost of your loan, especially with expensive loans.”
Bad credit profile
The unsecured nature of personal loans prompts lenders to take a cautious approach. They mainly approve personal loan applications after taking into account the applicant’s credit scores, monthly income, job profile, employer profile, etc. Some lenders have also started fixing the interest rate for personal loan applicants based on the credit profile.
Gold loans, on the other hand, are fully secured loans backed by adequate collateral. This allows lenders to sell the pledged gold in the event of default by the borrower. Therefore, lenders tend to take a less stringent approach to lending while approving gold loans to those with poor credit scores and poor credit profiles.
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