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You can avail a personal loan from a bank to meet any emergency. Banks do not ask you the purpose of such a loan. This is an unsecured loan (no collateral is asked by the bank).
Banks charge you a high rate of interest on the personal loan say 18-22%.
So is there a better alternative to a personal loan?
Yes…if you have gold lying unused in your locker you must seriously consider availing a gold loan. Gold lying unused in a locker does not give you cash (money).
You can monetize (convert your gold to cash) by availing a gold loan. You can use the money to meet any emergency. Gold loan being a secured loan (availed using gold as a collateral) means you can avail this loan at a lower interest rate than a personal loan. The interest rates are about 14-15% for a gold loan.
The loan to value ratio:
You can avail a gold loan with a loan to value ratio of 75%.This means if you pledge gold worth INR 100 you can avail a loan worth INR 75.
The bank is satisfied as even if the gold value comes down the bank can recover the amount as the bank still has a safety margin of 25%.
The amount of loan you take:
The amount of money you can avail in a personal loan depends on your eligibility. Your salary plays a major role while availing a personal loan.
In India tradition demands that gold be collected and accumulated in the family. This means you can easily avail a gold loan with this family gold.
You get a LTV (Loan to value) ratio of 75%.You get INR 75 for every INR 100 you pledge. Your loan is secured against gold (collateral) and banks charge you
a lower rate of interest than a personal loan.
Rural areas:
If you reside in a rural area you can easily avail a gold loan from an NBFC rather than a personal loan.
The documentation is much faster if you avail a gold loan from an NBFC rather than a gold loan or a personal loan from a bank.
Remember: The NBFC charges you a higher rate of interest than a bank. The interest charged by the NBFC could be around 22-24%.This is comparable with the rates of a personal loan.
Another benefit you get from availing a gold loan from an NBFC is you have to only pay the interest amounts regularly on the gold loan.
You pay the principal (Borrowed amount) back at the end of the term (tenure of the gold loan) and reclaim your pledged gold jewelry.In a personal loan you have to pay back both (Principal + Interest) as an EMI.
There are no processing charges and pre payment penalty if you avail a gold loan from an NBFC.
You have to pay both processing charges and a pre payment penalty if you avail a personal loan from a bank.
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