How to select when it comes to personal loan vs gold loan?

Personal loan. A type of unsecured loan (A loan where there is no security in terms of property or asset or bonds or shares or gold that is kept against the money borrowed) that is taken when the requirement is beyond some specifications like home, motor, two-wheeler or education. It can be for home renovation, travel, marriage, emergency in the family, medical issues etc. Sometimes, when any of these specific types of loan is taken, there must be some amount which is required above that and for that also anyone may apply for the personal loan. As it is the unsecured type of loan, the approval may take time as the lender will cross verify the details that have been provided. Also, as it is a risk if the borrower may deny repaying the loan amount later. So, the processing may take usually higher time than the secured types of loans. The interest rate will be between 10.75% to 33% depending on different lenders and looking at the credit score. If one is applying for a personal loan with a bad cibil score, they may have to pay a lot higher amount of interest than if the score is good. Also, a personal loan can have tenure ranging from one year to five years.

Gold loan. A type of secured loan (A loan where there is security in terms of property or asset or bonds or shares or gold that is kept against the money borrowed) that can be taken for any kind of personal use. When it is secured loan like this, banks may not usually ask for the requirement in depth. Of course one has to say in brief the requirement of the funds they want, but here as the gold is taken as security, the risk factor is less as there is security. So, the approval of the loan is easier and will hardly take a couple of days to be approved. Not much background check is required. So, a gold loan becomes much easier and faster in case of urgent requirement of the funds. However, it is also difficult to get through as the processing fees come to the picture and the loan is given only on the gold weight. So, the weight of stones, mina, diamonds, or pearls is not considered. The interest rate ranges from 9.5% to 17% again depending on the cibil / credit score. The usual tenure ranges between six months to two years.

While choosing the loan, which would suit the borrower the best depends on the total amount required, cibil score and the time available. Suppose the borrower wants the loan of twenty-five lakhs but has gold only worth five lakhs, he/she has to apply for a personal loan. Also, since many people have not declared all the gold they have on papers, that gold which is not bought with the bill cannot be kept against the credit taken. If the amount that is required and the gold that they have may match, a gold loan is a good option. But again, if they want a longer tenure, that is not available in terms of a gold loan. But, when the interest rate is checked, it is much lower compared with the personal loan even when the credit score may not be that good!

It completely depends on the requirement and the repaying capacity of any individual that which loan would suit them the best. By checking it across a few banks and lenders a borrower can make the decision of choosing which loan to pick. Check below the summary of the comparison of both the loans.

Attributes

Personal Loan

Gold Loan

Amount

Upto 25 Lakhs

No Limit

Tenure

Upto 7 years

Upto 24 Months

Interest Rate

10.75% – 33%

9.5% – 17%

Processing Time

Much higher as it is unsecured loan

Very fast, upto 2-3 days

Processing Fees

Nil to 1%

Nil to 1.5 %

Approval Probability

Low comapred to gold loan

Mostly sure

Advertisements

Credit Card Charges You Must Know About

We all know that a credit card can provide numerous benefits. You can use it to purchase expensive items on EMI basis which makes them easily affordable, save money with cashback offers and discounts from time to time, enjoy travel miles that can lower the cost of airline tickets, and more. However, almost every card has various types of charges that you must know about. In this blog, we will take a look at some of the most common ones.

Interest Charge

When you receive a credit card bill, you have the option to pay only a portion of it which is usually 2% to 5% of the total amount. This is called “minimum payment”. However, the balance amount is carried over to the next month and becomes your debt. It also attracts an interest rate which is usually charged at 2% to 4% per month.

If you have the habit of making minimum payments frequently, then you can end up collecting a lot of interest which not only makes repayment challenging but also leads to a low CIBIL score. Hence, it’s best if you don’t give in to the convenience of minimum payments altogether and pay your bills in full every time.

Maintenance Charge

Most credit cards have a fixed annual charge. Sometimes the providers waive off the charge for the first year to attract new customers but it becomes applicable from the second year onwards. So, it’s something you should ask about when applying for a new credit card.

ATM Withdrawals

Just like ATM/debit cards, you can withdraw cash from ATMs with credit cards as well. However, there is a huge difference between the two. With debit cards, no fee is charged for the 3-5 withdrawals in a month and even when it’s charged, it’s quite small. With credit cards, however, you pay a flat transaction charge of 2.5% to 4% at the time of withdrawal. In addition to that, there is annual interest on the amount too which is usually between 25% to 45% per year. Another thing to keep in mind is that unlike standard credit card transactions which don’t attract interest for a period of 30-40 days, cash withdrawals start attracting interest immediately.

Foreign Transaction Fee

When you use a credit card in a foreign country i.e. buy a product or service in a foreign currency, then a foreign transaction fee is levied on the same which is usually quite high at 2% to 4%. Thus, it’s highly recommended that you carry plenty of foreign currency in physical form when going overseas. You can also get a travel credit card if you travel more often. This is because most of the travel credit cards can be used in foreign countries at 0% foreign transaction charges.

Late Payment Charges

Almost every credit card issuer penalizes the customers for being late with the payments. The late payment charges usually apply when you fail to pay a bill even after 3-7 days have gone by since the due date. The actual fine depends on the current balance on the card itself.

Although late payment can hurt you financially as you have to pay a fine, your credit report can be damaged in the process as well. In fact, late payments are one of the most common reasons behind low CIBIL score. So, take every single payment seriously and arrange the money in advance so that you don’t default.

Goods and Services Tax (GST)

Financial services have always been taxed by the government. However, the actual rate has changed since the introduction of GST. Previously, the service tax was fixed at 15% but now it’s increased to 18%. This has affected late payment penalties and interest rates as well.

Bottom Line

It’s wise to learn about the various fees associated with credit cards that a lot of people use today. However, you should be wary of other risks as well. For instance, it’s important that you keep credit utilization low. If you have several credit cards and have to close one credit card account, then choose the newest one to protect your credit rating. Lastly, make sure that you never miss a credit card payment. Taking care of all these things can make personal finance easily manageable.

 

4 quick tips to manage your personal loan EMI better

Not all financial needs can be met through savings. Personal loans help people survive tough times and help in getting the funds that they need to meet their immediate cash requirements. You can depend on these loans for your child’s education, marriage, medical expenses or any other purpose. But taking a loan puts a responsibility on the borrower, that he needs to repay the loan amount through fixed monthly instalments. The borrower needs to make sure that he makes the payment on time. Failing to do so will not only attract penalties but also affect ones credit score negatively. Here are some tips that will help people manage the personal loans EMI in a better way.

Pre research

If you spend a little time in researching and comparing the various options of personal loans that are available to you, then this effort can go a long way in helping you manage your EMIs. Check and compare the personal loan interest rates offered by various banks, NBFCs as well as private lenders. Do not just go with the first personal loan offer that you receive. Even the bank with which you have a prior relationship may not offer you the best deal. So do your due diligence and find out the best available loan offer. You need not go physically to each bank to talk to the officials. Use the Internet to compare the different options that you have, and select the one that suits your needs. Since the interest rate is directly proportional to the EMI amount, a lower interest rate translates into a smaller EMI amount. So be a smart borrower and choose your option wisely. If you manage to get the loan at a comparatively lower rate, the EMI burden on the income will be less.

Pay attention to credit score

This tip also requires efforts prior to taking the loan. As you have seen above, managing EMI becomes easier when the interest rate charged on the loan is low. A good CIBIL score helps you achieve just that. A CIBIL score reflects how well a person has handled his past debt obligations. A high score reduces the risk that the lenders face while lending money. It helps in winning their trust that the borrower will repay the loan responsibly. But if you have a low CIBIL score, do not get disheartened. You may still get approved for the loan. There are many lenders who offer personal loan for low CIBIL score. But then before you take such a loan, you must be sure about your repayment capacity. A high interest rate translates into high EMI amounts. If you are not able to stick to your payment schedule your score will take a further hit.

Use a Personal Loan EMI Calculator

Using a mortgage calculator really comes in handy when you have to manage different aspects of EMI. It helps you decide whether you can repay the loan amount easily. So use a personal Loan EMI calculator to see how much monthly payment you will need to make, given a specific loan amount, interest rate and tenure. Change the loan period and see how it affects the EMI amount. One needs to choose an option that suits one’s pocket. Make sure that the total debt obligation that you need to handle in a month (EMIs of past loans + the EMI on new personal loan) does not exceed 50% of your salary. If it does, then you may have to increase the tenure of the loan to reduce the EMI burden on each month.

Contingency fund

One cannot underestimate the importance of rainy day funds when it comes to managing EMIs effectively. In case of any unplanned situation like a loss of job, or medical emergency these funds give one some breathing space. One does not need to worry about delays in EMIs. Usually, you must have enough savings that can service 3-4 months of EMIs. But these funds can be built up only when one takes care of his spending patterns. Make a budget and stick to it. Slowly build up reserves so that you don’t have to worry about any missed payments.

There is nothing wrong in taking a personal loan to fulfil one’s cash requirements. But it is important to make sure that one repays the loan diligently. Following the above tips will help you manage the EMIs well and follow a disciplined life.