How Do Gold Loans Differ From Secured Loans and Unsecured Loans?
Posted: Sep 05, 2019
A gold loan is a loan granted against gold jewellery or ornaments. You can use the borrowed amount to meet any expense. There is no restriction on how you put loan against gold to use. It is a secured loan and is different than unsecured loans. In fact this loan is even different from other traditional secured loans. We will give a breakdown of a gold loan to you today.
Gold Loan vs. Unsecured Loans
Gold loan is a secured loan, where the gold ornaments submitted to bank against which the funds are released, are considered as collateral. An unsecured loan is one that does not entail submission of collateral. Let us look into the factors that distinguish a loan against gold from an unsecured loan.
- Collateral: As a loan against gold is secured, it is distinct from unsecured loans. The latter do not require you to submit collateral or security with the bank/NBFC, while the former does. If you are unable to repay gold loan, then the jewellery kept with the lending institute would not be returned to you, while unsecured loans have no immediate assets to endanger. However, the financial institute will work out a way to recover the amount by liquidating any of your assets or savings, investments etc.
- Loan Amount: Another factor that distinguishes gold loan from unsecured loans is the amount of loan granted. Usually, you can borrow as little as Rs. 50,000 but traditional unsecured loans start at Rs. 1 lakh. However, today small cash loan, which is unsecured, is an option wherein you can borrower between Rs. 10,000 and Rs. 50,000 for a short-period, but unlike gold loan, the tenure is not in years and the loan amount is also less, while you can receive up to 75% of the gold jewellery value from gold loans.
- End Purpose of the Loan: A gold loan can be utilized to complete any financial need. But specific unsecured loans, such as that for business, can be utilized for a business purpose only. Only
- Interest Rate and Terms & Conditions: Secured loans like that on gold ornaments usually come at a lower interest rate than unsecured loans such as personal loans, credit card loans, or a business loan without collateral. Collateral loans also give you a greater advantage of negotiating loan terms and conditions, and charges, while security-free loans can be only negotiated for tenure, charges etc, if you have an excellent credit score. A credit score is a score given by credit bureaus that analyze your credit behaviour.
- Eligibility Criteria: If your credit score is not up to the mark, it is difficult to attain unsecured loans. But, a secured loan can be approved, even if you have a decent credit score, if not the best. Eligibility criteria for secured loan can be relaxed when it comes to profession and income, but the same would be stringent for unsecured loans. For instance, a personal loan is given majorly to salaried individuals, while a gold loan can be granted to professionals, housewives, and people from any profession.
- Income Requirement: Minimum income requirement for an unsecured loan is high. For example, if you wish to apply for lowest amount personal loan, you need to have at least Rs. 25,000 as monthly income. Sometimes, a loan against gold can be provided to someone who is temporarily unemployed but has some source of income or finance provider to repay the loan.
- Documents Needed: Gold loan documentation does not necessarily include income proof or income tax returns, while unsecured loans such as credit card loan and personal loan, may require you to produce these documents. Collateral-free business loans have a much complicated documentation with proof of business registration, financial statements etc necessitated, which are not required for loans against gold.
- Guarantor: For a high-amount unsecured loan, the lending institute would usually demand a guarantor. However, this is not the scenario for gold loans. You do not have to produce a guarantor or a third-party support to get your loan sanctioned.
Thus, depending on your needs, financial condition, income, credit score, eligibility, and other aspects, you can choose between a gold loan and an unsecured loan.
Gold Loan vs. Secured Loans
Though a gold loan is secured in nature, it starkly differs from traditional secured loans, such as loan against property, home loan, car loan etc. Documentation for these loans will be related to the purpose of the loan serves. The same condition holds for the eligibility criteria for particular secured loans. Let us find out how these loans differ from each other and what makes gold loans dependable for urgent finances.
- Approval and Disbursal Time: The time taken for approval and disbursal of gold loans is different than that for other secured loans. The former is approved the same-day of loan application and gold evaluation. It can be disbursed the same-day as well, sometimes in as little as 2 hours. But, secured loans such as property loans and housing loans, take days if not a week or more to get approved and amount disbursed.
- Tenure: tenure (2 years to 3 years) of a gold loan is lower than home loans and loans against properties. The tenure for the latter two can extend up to 20 years or 30 years.
- Loan Amount: The loan amount also varies. Traditional secured loans such as those against property or for purchase of a property, can grant you an amount up to several lakhs/crores, while a loan against gold can be sanctioned up to Rs. 50 lakhs only. Thus, as per the amount you require, you can choose either gold loan or other secured loans.
- Purpose of the Loan: Specific secured loans, such as car loans and home loans, can be utilized for the purpose it has been taken for only: purchase of the car and property. Loan against property is however a loan that can be taken for any financial requirement, as like a gold loan.
Thus, a gold loan is distinct in itself. It stands out among other secured loans and unsecured loans. The most suitable loan for you, would depend on multiple factors, and by reviewing the above-mentioned conditions, you can decide for yourself, if you require a gold loan or any other secured or unsecured loan.
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