During ones walk through life, they can encounter emergencies where they require financial help. And, the most reliable method of said backing can be offered by a notable financial institution, like banks. The two fastest methods of acquiring this are personal loans and gold loans. Let’s consider the benefits and drawbacks of both.
If you have some gold deposited in the safety vault of your home locker, you can readily approach a lender for cash for gold near you. The financial institution will evaluate the gold and extend the loan within no time. They are an excellent line of credit for a short period.
Here are some highlights of availing a gold loan
High Credit Score is not required
Banking, at the end of the day, is a game of risk. Banks assess risk hile handing out loans. When it comes to gold loans, being that gold loan is backed with collateral, banks see no risk while handing them out. Thus, loan intuitions do not consider credit score while issuing gold loans.
On the contrary, when it comes to personal loans, banks don’t have the same level of assurance that you will pay back what you owe. Thus, they employ the use of credit history and credit score while considering a personal loan. Financial institutions normally categorise you by your credit score. Thus, to get back the money they expect to lose from a person with a lower credit score, they increase the interest percentage on personal loans granted to people with lower credit scores.
Lower rate of interest
When compared to the personal loan, the rate of interest of gold loan will be much lower and will get approved quickly. Lower rate of interest attracts many customers to prefer gold loans over personal loans. The rate of interest is somewhere between 10.5%-15% in the case of a gold loan compared to an interest rate range of 16% to 22% in the case of personal loans.
Rapid Loan Approval
Since cash for gold loan is extended based on the collateral you hold, the lender may not require substantial documentation. All they need is some basic documents to prove your identity and place of residence. The processing time isn’t too long before you get approved and issued a loan.
The difference in Cost
Most of the lenders provide cash for gold without asking for any income proof. Since they retain collateral security, they don’t consider it necessary to scrutinize the income documents. So they don’t charge any processing fee for this process. In the case of personal loans, if you submit income documents, they will scrutinize the documents to verify the genuineness of the document. This charge will be 0.5 to 1% of the loan amount which can end up being substantial in case of larger loans. All you have to do is to approach a financial institution, hand over the gold as security, and get the desired amount as a loan.
Pay only interest in the EMI
One of the attractive features of gold loans is that you can pay only the interest for the loan as EMI. This is possible because the value of the gold pledged exceeds the amount of the loan. During later years, you can pay off the principal amount and close the loan. No other loan (for example – a personal loan) has an option to repay only interest as an EMI.
Prepayment charges
You don’t have to pay any prepayment charges if you decide to close the loan before the tenure of the gold loan. You can approach your lender any time and close the loan by paying the whole amount in one go and get back the pledged gold from them.
In short, there are two types of loans you can avail of in case of a cash crunch. If you have an excellent credit score, you can approach the lender for a personal loan. But the rate of interest for a personal loan is very high compared to a gold loan as you don’t hypothecate any asset to get a loan. You can get cash for gold near you without submitting any documents. If you are looking for a short term loan, it is better to prefer a gold loan. It doesn’t require you to have a high credit score, and you get the loan at a competitive interest rate.
