Personal Loans vs Gold Loans ? Which is Preferrable?

In the ancient times, before the advent of CIBIL score and credit history, there was a time when diligent Indians went to a moneylender. They would pledge gold in the form of trinkets and heavy ornaments for money.

This worked out perfectly for the lender. The money would come back either from the borrower or from auctioning off the gold.

Today, times have changed and we no longer need to part with our sentiments wrapped in the little pieces of gold that our ancestors have left behind for us.

If you can get a personal loan which is essentially unsecured, simply based on your good credit history, why wouldn’t you?

At a higher rate of interest, loans against gold are marginally more expensive to the borrower. Not to forget the stress hanging over the borrower’s head of the possibility of losing the gold altogether due to non-repayment of the loan.

How would the borrower be able to replace the heritage and personal history associated with the gold if it is auctioned off?

Gold loans are great for people who don’t have supporting documents like aadhar card, voter’s ID card, driving license or Pan Card usually required to obtain a loan from a formal lender.

But, how many of us don’t have at least one of the above?

And if you do then why wouldn’t you opt for Personal Loans those offers you a better rate of interest and longer loan tenures?

What’s more is that gold prices have been increasingly unpredictable for a substantial amount of time and the contradictory opinions of experts about the future of gold prices makes it even more unstable.

In the event that gold prices fall after you accrue a loan against your gold, then you will have to remunerate the lender for the drop in the price of gold.

So, you will end up paying more principal amount back to the lender than you had borrowed.

Moreover, if you have a good credit history, you actually stand a chance of getting a lower rate of interest on your personal loan than you would have on a gold loan.

All the technicalities set aside, we are an EMI generation. Most of our household items and in some cases, our gadgets even are purchased on EMI.

Gold loans don’t offer the option of EMI payments.  

If you take a gold loan, then you pay interest regularly but the principal amount is only paid back at the end of the loan tenure. So, for instance if you don’t have the liquid assets to pay the loan back, you stand to have all of your gold auctioned away, even if you have earnestly paid your interest throughout the tenure.

Typically, the loan tenures offered for gold loans are much shorter than those offered for personal loans, thus defeating the purpose of liquidity. If you stand to receive a large sum of money within 12 months, then why would you consider taking a loan at all?

Gold loans should be a last resort choice, if the option of a personal loan has already been negated. Gold is an asset, in India, that gets passed on from one generation to the next. Having gold seized is not only a financial loss. It is a loss that is almost impossible to replace.

Furthermore, the borrower will have to keep an eye on the gold prices throughout the duration of the loan while worrying about paying the loan back. Where there could have been just one thorn to worry about, the borrower will now have two.