Gold Loan Is Cheaper Than Personal Loan in India

Gold loan Is cheaper than personal Loan because financial institution is taking Gold as collateral. Personal loan is un-secured and hence carries higher interest.

Written by Anil Gupta
  Anil Gupta    Updated 27 Apr, 20

Have you been looking around for a personal loan for some immediate requirements? If yes, then I would suggest you go for a Gold loan instead of a personal loan.

A personal loan is a loan given by banks and other private lenders to meet any kind of personal need like marriage, buying an electronic item, or anything else.

Gold loan also has he same intention of meeting any of your expenses.

The difference between the two is that in case of personal loan, you do not have to give any kind of collateral whereas a Gold loan is backed up by your Gold.

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 fee. This processing fee generally varies from 0.5% to 1% of the loan amount.

The benefit of gold loans is that you don’t need to submit any income proof as such. Most of 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 in Gold loan cases.

Benefits of Gold Loan

#1 Lower interest rates

If you closely look at the Gold loan interest rates in the market, you would find them hovering around 12-15% per annum whereas the personal loan rates range from 18% to 24%. A staggering difference of 6% between the minimum interest rates places Gold loan in my preferred list too.

#2 Pre-payment charges

Generally, you need to repay your loan using a fixed EMI’s spanned over a fixed period of time. And if you pre-pay any amount, banks charge you a pre-payment fee of about 2% of the current outstanding principal amount. This is not the case in the Gold loan. You can repay any amount and close your loan account anytime. I have personally done this when I took the Gold loan from Muthoot finance.

#3 No EMI, Service only Interest and enjoy the Loan facility

This is one of the features only available in Gold loans. Since the lender has the Gold deposit whose value is more than your loan amount, they are able to offer you the NO EMI option. i.e. You don’t need to pay a fixed amount of EMI which is a combination of interest amount principal repayment.

Only keep paying the interest amount and the lender will be more than happy to keep the loan account active for years. Well, this is of course not a good thing to do as you will never be able to get your Gold back unless you give back the principal amount of your original loan.

But yes, it does offer you flexibility in terms of minimum commitment in hard times when you are out of the job of need to pay some emergency medical bills.

How Gold Loan Can i get?

The loan amount is dependent on your salary in case of a personal loan and on the value of Gold in case of a Gold loan. So, these are two different perspectives.

Let’s say that you are earning INR 50,000 per month, then you would be eligible for about 10 lakhs of personal loans for a period of about 5-7 years.
Contrast this with the Gold loan option where the amount of loan that you can get depends on the value of the gold you possess.

Traditionally, India has been the biggest consumer of Gold and you can find it embedded in your home easily.

You can normally expect the loan up to 70% of current market value of your Gold. And this amount can go up to 90% if you are ready to pay a higher rate of interest. This is based on individual company schemes.


Written by Anil Gupta
  Anil Gupta           

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