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People often get confused between gold loan and personal loan for emergency needs. Both are easy options, but their costs, speeds, and risks are quite different. The right choice depends on how quickly you need the money and how much risk you are willing to take.
New Delhi. When there is a sudden need for money, most people get confused in deciding between gold loan and personal loan. Both have their advantages and risks. In gold loan, interest is less and money is available quickly, because the loan is given against gold. Whereas in a personal loan, no jewelery has to be mortgaged, but its price is usually higher. In such a situation, it is wise that you choose the right option based on your need, convenience and risk taking ability.
Why is gold loan cheaper?
The biggest feature of gold loan is that its interest rate is usually lower than personal loan. Since the banks have the gold as collateral, their risk reduces significantly. On the other hand, personal loans do not have this security, so the interest rate depends on your income, job stability and credit score. Along with this, processing fees, insurance and pre-payment charges can also increase the total cost. Therefore, the decision should be taken only after understanding the actual cost of both the options.
How soon will I get the money and what is the risk?
If it is a matter of getting money quickly, then gold loan outweighs personal loan. Once the gold valuation and KYC are completed, the money is often credited to the account on the same day. Personal loans are also sometimes available faster, especially if there is a pre-approved offer, but income and credit checks still take time. However, in case of default in gold loan, there is a risk of your gold being auctioned, whereas in personal loan, there is no such risk, but the credit score may get spoiled. That is, which side is the security, it depends on your priority.
Which loan is the better option?
Gold loans are best for short or medium tenures, especially when you are confident that you will repay quickly. At the same time, personal loan comes with long tenure and fixed EMI, which makes it easier to budget for big needs. If your income is irregular, also check whether you can make prepayment and whether there is any penalty on it. Overall, if you want fast money and can repay quickly then gold loan is the right option. But if you want more flexibility without mortgaging your jewellery, a personal loan is better – even if it costs more. The right choice is one that reduces both cost and stress.
