Gold Loan Or Credit Card Loan - Which Is Better?

A loan from a bank or a non-banking finance company (NBFC) can sometimes become necessary if one’s income or savings aren’t enough to meet certain expenses. A medical emergency, for instance, or a wedding in the family could prompt a person to take out a loan to cover the additional expenditures. Aside from emergencies, someone may also want to borrow money from a lender to buy household appliances, latest gadgets or going on a vacation.

To meet such expenses, banks and NBFCs as well as new-age fintech lenders offer a wide range of credit products. Two of the most popular among such options are gold loans and credit card loans.

These loans can help people meet short- and medium-term expenses when they face any shortfall of money. These days, such loans can be taken easily and quickly as most lenders follow an online application and approval process that can be completed within minutes via mobile apps or websites.

However, a prospective borrower must be clear about all the credit options before choosing a loan.

Gold Loans

A gold loan is essentially a loan taken out by pledging gold jewellery, or even coins in some cases. Any adult individual who has gold ornaments to keep as collateral can avail a gold loan. These loans can help pay for healthcare emergencies, children’s school or college fees, spend on a wedding, renovating home or office any other legitimate financial need. Gold loans are very useful when there is an urgent need of cash.

Taking out a gold loan is an easy affair, with many lenders adopting an online process to process loan applications. Prospective borrowers first need to fill up a loan application form and submit the required gold loan documents online. Thereafter, the lender either sends a representative to the borrower’s home or ask the borrower to come to its branch to conduct appraisal of the gold ornaments to be pledged.

After appraisal and document verification processes are completed, the loan is approved quickly and the money is transferred into the borrower’s bank account.

The amount of loan depends on the value of the gold pledged and the current market price of gold. The loan can be repaid in monthly installments over a fixed duration. Since it is a secured loan, the gold loan interest rate usually lower than unsecured debts such as personal loans and credit card loans.

Credit Card Loan

Using a credit card makes it simple to make purchases immediately and pay them off later as the credit card provider directly pays money to the merchant on a card swipe; the borrower later pays the credit card company. Credit cards are accepted both at shops and stores as well as online for purposes such as shopping and flight and hotel booking.

Lenders offer credit cards to individuals with different spending limits. The limit depends on a number of variables, including the customer's income, banking activities, credit ratings, and payback history. In general, organisations that issue credit cards give their consumers up to 45 days to make their credit card payments without interest. However, after this period, the interest rate charged is very high and can go up to 30-40% a year.

Additionally, many cardholders frequently receive a loan offer from their lender for a sum greater than their credit limit. Credit card loans can also be utilised for both minor and large purchases to meet both personal and professional financial demands.

The approval time for credit card loans is typically one to two days, and they are extended based on the customer's credit card usage and repayment history. Banks may charge different interest rates on this loan. A credit card loan borrower has the option of paying it back at the conclusion of the credit period. Additionally, for the pre-determined tenure, EMIs are added to monthly credit card statements, which lessens the strain on people.

As long as the account is active, the borrower has access to the funds from credit card loans. However, these loans may have higher costs than gold loans, particularly if payments are made late or in part.

Which Is Better?

Both gold loans and credit card loans have their own advantages and disadvantages. So, choosing between the two options depends on each individual’s financial requirements and convenience. Prospective borrowers should decide the amount they need to borrow, for what period and how they plan to repay the loan.

In general, both loans are equally quick and convenient to take. But gold loans are cheaper than credit card loans. Also, for gold loans, prospective borrowers have far more lenders to select from than in the case of credit card loans.

However, if a person doesn’t have any gold jewellery to pledge, then a credit card loan is the only option. In either case, borrowers should select the lender carefully and opt only for a well-known lender.

IIFL Finance, for instance, offers gold loans via a fully digital gold loan process that can be completed within a few minutes. The company offers competitive interest rates and customises repayment schedules to make it easier for borrowers to pay off their debts without any undue burden. Moreover, IIFL Finance keeps the gold safe in secure vaults and even provides a free insurance cover for the gold.