Saturday, March 28, 2015

Personal Loan Vs Gold Loan

Personal Loan Vs Gold Loan




What is Personal Loan?

personal loan is a smaller loan than a mortgage and is generally used to finance a car or other vehicle, renovations to a home, consolidation of debt, to finance a vacation of one kind or another, and a great number of other things.
personal loan is of a shorter term than a mortgage. Instead of being for ten, twenty, perhaps thirty years, a personal loan is usually for between one and five years.  A personal loan can be used to consolidate a number of other loans into one.

What is Gold Loan?

Gold loan is the loan given by bank or financial institution to individuals based on gold as collateral security. Banks / Financial institutions would generally keep some margin for market price fluctuations and would provide loan only up 80% of the total gold jewelry value.
Interest Rates: Personal loan does not carry any security, hence banks/financial institution would charge very high interest rates. Interest would range between 16% to 30% per annum. On the other hand, gold loans are provided against gold as security, hence these are less risk for banks/financial institutions. Interest rates would be very less and ranges between 12% to 16% per annum. Hence Gold Loans score high in this aspect as they comes with low interest rates.
Processing Charges: Processing fees are reduced now. However still processing charges for personal loans comes at 1% to 3% of the total amount. Gold loans on other hand comes with less charges as there is no complete verification of income nor guarantor required. They are charging in between 0.5% to 1.5% of the total loan amount. Here too, loan against gold jewellery scores high.
Tenure: Personal loans are provided for short term to medium term period (1 year to 7 years period). On other hand, gold loans are provided for short term of 3 months to 3 years and sometimes up to 5 years. Hence which one to opt would depend on your requirement.
Interest rates depend on your risk profile: Personal loans are provided based on your risk profile. If your credit score is high, you might get personal loans with low rates. On the other hand, gold loans are provided considering gold as collateral security. Hence banks/financial institutions would not consider credit profile as basis for deciding interest rates. It would depend on company to company, tenure etc.

What is the difference in cost?

Since personal loans are given to you without any collateral, banks need to do a scrutiny of your income proof documents and hence charge you a processing fees. This processing fees generally varies from 0.5 per cent to 1 per cent of loan amount.
The benefit with gold loans is that you don't need to submit any income proof as such. Most private gold loan providers do not ask you for any income proof. Although banks operating in this field may need some documentary proof.
The real benefit is the processing fees though. Major gold loan providers like Muthoot finance do not charge any processing fees. You just need to deposit your gold and you get the loan.
The whole process does not even take more than 15 minutes. Deposit gold, sign some documents and walk away with cash.
Please do keep in mind that banks may charge processing fees on gold loans but if you can negotiate, it can be waived off easily.

How much amount do you get in gold loan?

The loan amount is dependent on your salary in case of personal loan and on the value of gold in case of gold loan. So, these are two different perspectives.
Let's say that you are earning Rs 50,000 per month, then you would be eligible for about Rs 10 lakh of personal loan for a period of about 5 to 7 years.
Contrast this with the gold loan option where the amount of loan that you can get depends on the value of gold you possess. Traditionally, India has been the biggest consumer of gold and you can find it in your home easily.
You can normally expect the loan amount of up to 70 per cent of current market value of your gold. And this amount can go up to 90 per cent if you are ready to pay higher rate of interest. This is based on individual company schemes.

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