Financial emergencies are those unwanted situations which you want to avoid at all costs but are unable to do so. It might be due to poor planning, increasing the cost of living, unavoidable circumstances or lack of resources, financial emergencies have become part and parcel of modern life.
Earlier, people used to dip into their savings to take care of the unexpected expenses, but this is not the ideal solution as you could be left unprotected for any future uncertainties. Realising this need, many financial institutions came up with an ingenious offering–, Personal Loan.
Very few financial products offer the flexibility and benefits of a Personal Loan in meeting the expenses at hand. Likewsie, there is another financial product that allows easy access to funds within a few hours, i.e., Gold loan.
Gold Loans allow the customers to mortgage their gold jewellery and bullion to avail instant cash loans. With both these loans having the potential to help you take care of your urgent expenses, it is normal for you to feel confused regarding their suitability for your requirements.
Here is a detailed analysis of these loan products so that you can conveniently determine a better credit option for yourself.
Personal Loan
A Personal Loan is an unsecured loan offered by financial institutions to their customers for a variety of requirements. They are ideal for meeting urgent requirements as the applications are processed within a few working days and require only minimal documentation. Personal Loan from HDFC, SBI, and ICICI Bank are some of the most popular options availed by the customers. Here are the major advantages and disadvantages of Personal Loans that you must be aware of: –
Advantages
- Unsecured
Personal loans are unsecured in nature and do not require any security to be hypothecated with the lender. This eliminates the chances of you losing out on the security in case of a default, making it an ideal during the times of crisis when you might not actually have any collateral to be pledged.
- Flexibility
Personal Loans like HDFC Personal Loan can be used for any financial requirements of yours without any need to inform the lender. This allows you the flexibility to use the money as per your wishes.
- Minimal documentation and quick approvals
The Personal Loan application process requires only a few basic documents to be submitted. This ensures that the applications are processed in a quick manner, and within a few working days, the amount is disbursed.
- Long repayment tenor
Personal Loans come with an extended repayment tenor which can extend up to 60 months. This makes the EMIs more affordable to you and reduces the chances of any pressure on your finances.
Disadvantages
- High-interest rates
Personal Loan Interest Rates can go as high as 23%, making them an expensive option compared to other secured loans. The interest cost is a drain on your finances.
- Foreclosure charges
Many lenders levy foreclosure charges of up to 5% against Personal Loan pre-payment. This prevents you from foreclosing the loan even if your finances allow that flexibility and you have to bear the interest cost for long.
- High CIBIL score
Lenders require a CIBIL Score of 750+ for Personal Loans as the risk associated with an unsecured loan is high. If your CIBIL score is low, you can not avail a Personal Loan.
About Gold Loan
Gold Loans are secured loans wherein you need to place physical gold in the form of jewellery or bullion as collateral with the lender. It is an excellent option for immediate cash requirements as the application processing takes only a few hours. Before you apply for a Gold Loan, you must consider the following advantages and disadvantages associated with this loan product:
Advantages
- Instant disbursals
Most lenders offering Gold Loans have an in-house metal valuer and are therefore able to ascertain the value of the jewellery in a few minutes and disburse the amount within a few hours itself.
- Low Interest rate
As gold loans are secured in nature, the risk factor for the lenders is reduced substantially. This allows them to offer reduced Gold Loan Interest Rates as compared to Personal Loan.
- No credit history required
You can avail a Gold Loan even if you do not have a credit history or have a low CIBIL score. Lenders do not bother about your CIBIL as they have your gold as collateral.
- Flexible payment options
You can repay the Gold Loan in various ways as per your preference, i.e., you can pay EMIs every month, pay the principal and interest at the end of the tenor or pay interest during the tenor and principal at the end.
- No foreclosure charges
There are no foreclosure charges levied by lenders against pre-payment of a Gold Loan. You can repay the loan as and when you desire during the repayment tenor.
Disadvantages
- High margin requirements
Most lenders offer you up to 75% of the value of the mortgaged Gold as loan. The remaining 25% is taken as the margin money, reducing the amount of money that you can get from the loan.
- Potential of losing the collateral
If you are unable to pay your loan on time, the lender will monetise the collateral without any delays. As a result, you will lose out on your gold.
- Requires physical gold
This option is only available if you have physical gold in the form of jewellery or bullion with you.
Evaluating these advantages and disadvantages of Personal Loan and Gold Loan, you can now make an informed decision and avail the option which is best suitable for you.
