Pawning your gold is a safer bet than taking a personal loan

Loan against gold is getting a mass appeal these days. Both private and public sector lender are gearing up to offer gold loans. For the short-term period, gold loan seems to be a better option compared with a personal loan. Cash emergency Loan against gold usually scores over personal loans when the borrower requires cash urgently. Gold loan is the fastest loan issued to a person, as the money is given immediately, unlike personal loan where one has to undergo a long and tedious procedure. "Gold loans are feasible in emergency and for a short period because the cost of acquiring the loan is comparatively lower than personal loan. The eligibility criteria is almost negligible making the process easier," says Suresh Sadagopan, who runs ladder 7 financial advisory services. One can get a loan against gold from any non-banking financial institution within 5 minutes after providing identity proof and without any processing fee. Some banks charge a processing fee in the range of 1-2%. Sonalee Panda, head-marketing at ING Vysya Bank says, "On an average, personal loan is issued in 72 hours. If an applicant's documents are in place, at times it may just take 24 hours. We offer personal loans between 15% and 18.25%, depending on the applicant, whether he is salaried or unemployed." The credit scoring done by banks for personal loans is based on formal documentation. Repayment options In gold loans, borrowers have the partial repayment facility, which reduces the burden of single time repayment. The loan outstanding and interest rate also declines. In personal loan do not have a partial repayment option. "Average interest rate for loan against gold is around 22%, whereas for personal loan it is 15%. Hence, one should opt for gold loan only in case of urgent cash requirement," says an official of a bank. "One should be aware about the credibility of the company from which they take gold loan and should have fair knowledge about the EMI (equated monthly installments) of their loan so that it will help him plan his repayment accordingly," says Raunak Roongta, an independent financial planner from Mumbai. Flexibility in the amount One can borrow a higher amount against gold as a collateral security, which is not possible in personal loan. "Around 60% of the borrowers from the NBFCs have an annual income of less than `2 lakh. When a borrower wants loan of more than 90% of the value of his gold, he has to pay higher rate of interest," said I Unnikrishnan, managing director at Mannapuram Finance. Most of the giant players lend money only against household jewellery. Data shows that Indian household owns around 18,000 tonne of gold. Lenders are pretty confident about repayment of gold loan because they feel that the sentiments attached to the jewellery will encourage people to repay the loan. The marketing initiatives have also made these loans popular.