In times of economic crisis when the country is going through a worse phase of economic downfall, loans are the facilities that help people averting danger and bring about economic prosperity. The opportunity to avail loan brings about the process of credit creation in the economy. The margin and quantum of institutional credit have significantly improved since people have resorted to take loans and make payments for purposes that are large scale in nature. Following is a comparative analysis between a personal loan and gold loan-
Definition of Personal Loan and Gold Loan
The two major types of loans that are available in the market are personal loan and gold loans. Personal loans refer to the loans that can be availed by the borrower from the bank. The loan is provided at a fixed percentage of money as interest payment. The interest on the personal loan can either be paid on a monthly or quarterly basis.
During the time of repayment of personal loan, the interest amount is required to be paid along with the principal amount. On the other hand, gold loan refers to the loan facility that can be availed from the private commercial banks. Gold loan is the loan facility that can be availed by keeping collateral security in the form of gold jewellery and ornaments to the bank. The loan amount is calculated according to an equivalent percentage of the gold ornaments that are kept with the bank.
Comparative Analysis between Personal Loan and Gold Loan
Following is an analytical comparison between a personal loan and gold loan-
Collateral Security kept- In case of personal loan no collateral security is to be kept with the bank. The bank does not require any personal guarantee in the form of gold ornaments to provide the loans to the borrower. On the other hand in case of gold loans, a significant percentage of gold jewellery has to be kept to the banks based on which the value calculation is required. The calculated value is the amount of loan that the borrowers can avail from the banks.
Interest Rate- In personal loans the amount of interest rate is high. For example- In the case of IDFC First Bank Personal Loan the interest rate is significantly high. Since the borrowing limit ranges from 50,000-20,00,000 and above according to the capacity of the borrower and no collateral is to be kept with the bank the borrowers need to pay a significant amount of money as monthly instalments and interest. On the other hand, the interest rate for gold loans is much lower. The borrowing limit for gold loans varies according to the value of the gold that is kept as security with the banks.
Conclusion
Thus a healthy balance in the regulation of both personal loan and the gold loan is crucial for the flow of formal credit in the economy.
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