This has been the perennial debate raging about the efficacy of personal loans and gold loans with both being extremely effective and efficient mechanisms to leverage credit and bring about institutional credit creation in the economic environment of a country. But there has been split opinion between the efficiency rates and productivity criteria of both gold loans and personal loans and split decisions have been received regarding the perks of both these forms of loans.
Before making a comparative analysis between both personal loans and gold loans we must possess a clear idea about the two different kinds of loans and their specific set of criteria commanding the markets and allowing borrowers the opportunity to leverage credit and bring about growth in the financial elements in the economic environment. We define personal loans by stating that it is that type of unsecured loan where the borrower has to submit a required application form, upon the approval of which the borrower gets the opportunity to avail the loan facility from the banking institution from which he looks to avail the loan.
On the other hand, the operating mechanism of gold loans is different as the gold loans can be defined as that form of loans where the disposition of collateral security must take place and it is a secured form of loan available in the market structure. In this type of loan, the loan amount granted to the borrower is equivalent to the value and amount of gold that is deposited to the banking institution as a collateral security deposit. A detailed analysis is between the differences existing between the systematic operation of personal and gold loans are as follows-
The difference in Prevailing Rates of Interest
Among the primary differences that crop up in these two forms of loans is the existent difference between the interest rates of these two forms of loans present in the market. While in the case of personal loans the interest amount charged is significantly high, the interest amount charged in the case of gold loan interest rate is not only significantly low but feasible as well and easily payable by the borrower which in turn encourages the borrower to take more loans from the private banking commercial organizations of the country.
For example- You being a borrower have the option of availing of personal loans at a 10% rate of interest while you also possess the option of availing of gold loans at an 8.5% rate of interest. You being a rational consumer would always opt for the second option as the interest amount generated in the transaction would be much lower and you will have a requisite quantum of the monetary amount at your disposal to further invest in productive activities.
The difference in Nature of Loan
The second important difference that crops up while making a comparative analysis of these two forms of existent loans in the market is the difference in their nature. While personal loans are unsecured not backed by the adequate and reasonable collateral security deposits in the form of non-current permanent assets, gold loans are backed by the adequate non-current permanent assets in the form of collateral security deposits which are submitted by the borrowers to the commercial banking authorities within a requisite period.
Terms of Repayment and Eligibility
There is a sufficient difference between the terms of repayment and eligibility criteria mandated for both personal loans and gold loans. In the case of personal loans, the repayment tenure depends on the period mentioned in the contractual agreement signed between the requisite Bank of India gold loan interest rate authorities and the borrower at large.
On the other hand, flexible terms of repayment are available. The eligibility criteria for gold loan mentions that any person who might be a sole proprietorship businessman or service personnel with adequate documents and possessing the necessary quantity of gold can avail of the gold loan facility while certain complications are involved while availing personal loans.
Thus through comparative analysis, it is evident that a gold loan is a safer option than personal loans.
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