Credit Cards or Gold Loans – Which one is right for you?

A credit card is typically an unsecured form of revolving credit. The cardholder is allowed a specified credit limit each month and must repay the amount they have used at the end of each billing cycle. Credit cards also offer many benefits by way of reward points and discounts to help us save on payments. A gold loan, on the other hand, is a secured form of credit where customers can access funds by leveraging the value of their gold asset. Gold loans are

Eligibility and accessibility

Banks usually have eligibility criteria for credit cards based on several factors. These include the applicant’s credit score, stability of income, and existing debt, to name a few. Those who do not satisfy the bank’s eligibility criteria may either get a credit card at a much higher interest or even have their application rejected.

Gold loans, on the other hand, are secured loans that allow you to access funds by pledging collateral, in this case, your gold assets. The eligibility criteria to apply for a gold loan are often simpler compared to a credit card. With gold being a popular and conventional investment in India, it is more likely to be owned by many people. One may not necessarily need to have a high credit score or credit history to avail of a gold loan, thus making it a more accessible option compared to credit cards.

Interest rates

One of the biggest factors when choosing any form of credit is the interest rate at which it is available. In the case of gold loans and credit cards, the argument tips in favour of gold loans and here’s why. Interest rates for gold loans currently range from 8% to 26% per annum. Credit cards, on the other hand, charge comparatively higher interest rates (APR) ranging from 28% to 52%. Thus, in the long run, a gold loan may be a more affordable option over a credit card for funding needs.

Quantum of loan

The amount of funds you can get with a gold loan is determined by factors such as the price of gold and prevailing inflation. Thus, the higher the value of your gold assets, the higher may be the loan amount you can avail. Credit cards, on the other hand, offer instant access to funds but are limited to the credit limit extended to you by your bank. This limit can vary depending on the card, as well as factors such as your credit score, repayment history, and income stability.

Which one should you choose?

When you need funds, especially in an emergency, going for the quickest option may seem like the thing to do. Gold loans provide quick access to funds and may be more affordable than credit cards, given their interest rate. However, in India, gold is still seen as a conventional investment which often has sentimental value attached to it. As a result, you may be hesitant to pledge your gold ornaments or assets for a loan. In that case, a credit card, especially if you already have one, can be useful and convenient for accessing funds. But, regardless of whichever option you choose, assess your needs and financial situation. Take only the amount of funds you require and have a repayment plan in place, regardless of whichever option you pick.

Adhil Shetty is CEO, BankBazaar.com