Emergencies play an inevitable role in your life. Financial setbacks may at times propel you to consider financial support from lenders. When it is about addressing immediate requirements, many often get confused about which credit option to opt for – gold loan, personal loan, or loan against property.
However, personal loans tend to include an immensely high rate of interest with stressful qualification parameters. Availing a personal loan instantly in such a scenario can be very challenging. Loan against property and gold loan has become a better choice in such scenarios.
What are the 2 important kinds of loans? And what could be the better choice between both? Let’s figure it out.
Gold loan – Understanding
A gold loan is a credit option that you get from a bank or NBFC by offering gold jewelry or ornaments as security or collateral. Generally, you are provided with a specific percentage of gold’s value in exchange. Lenders may levy a rate of interest, and once you make the payment of the amount in full, the gold provided as collateral or security will be offered to you. Note that as gold loans are secured in nature, they charge a lower rate of interest than unsecured loan options. For instance, Bajaj gold loan offers a Bajaj finance gold loan interest rate that starts from 9.50 per cent p.a. onwards, while the Bajaj personal loan interest rate begins from 11 per cent per annum onwards.
Loan against property – Understanding
A loan against property may be availed by mortgaging your residential or commercial property. Based on the property’s present market value, a particular percentage will get allocated by the bank as a loan against property. So, which is the best option for you? Highlighted here is the difference, which will assist you to make an informed decision.
Eligibility parameter
Eligibility matters extremely the most when determining the loan type. When it comes to a gold loan, banks generally do not worry about your profession, credit profile or score or other parameters. This ameliorates your potential of securing application approval.
With loans against property, eligibility parameters are extremely strict. Lenders factor in aspects like age, income, and credit history before offering money. This makes the procedure of becoming eligible for a loan against property extremely rigorous than a gold loan.
Interest rate
The interest rate will dictate the amount you must pay back in the years to come. Generally, gold loans are provided by NBFCs and banks at a fixed rate of interest. On the contrary, a loan against a property is offered at a floating rate and also at a fixed interest rate. As multiple lenders offer gold loans, ensure you assess all the possible rates of interest levied before making the final decision.
Also Check: Lowest Gold Loan Interest Rate
Loan processing time
As compared to a loan against property, a gold loan is way quicker to avail. This is a perfect credit option when you need funds on an instant basis. With lenient eligibility parameters and less documentation required, the loan process is faster in the case of a gold loan. Likewise, in the case you have applied for a pre-approved gold loan, you may get the gold loan approved in just a few hours. With a loan against a property, the lenders need time to authenticate the property-linked documents and get the NOC from all the owners. This, in turn, may increase the processing time.
Processing charges
Most lenders charge processing charges on the loan that you borrow. This is true for loan against property and gold loans too. Before you apply for a loan, ensure to assess all the additional charges that you may be levied in this process.
Repayment tenure
The higher the repayment tenure you go for, the lower your EMI constituent will be. But this will enhance the overall amount you require. However, this will enhance the overall amount you may end up paying in the form of interest constituents towards the end. Owing to such flexibility, gold can also be repaid in a year. The loan period for loan against property may go on for several decades. However, it may have a lower loan EMI constituent. With a short-term gold loan tenure, they will even have high loan EMIs. Gold loan tenures work with a smaller borrowed amount, as the loan EMI will be lower accordingly. When availing considerable amounts, loan against property may be a better choice for you.
Evaluating your needs and potential
When witnessing the requirement for immediate financing, a loan against property and gold loan can be an attractive option for you. Select the option that better works for you, keeping in mind the rate of interest, instant availability, and the loan repayment period. Gold loans remain an attractive choice as metal gold is present in nearly every household in India which provides a high level of liquidity. However, if it is a considerable amount that you want to borrow, a loan against property may be a better choice for you.
Who must go for the gold loan route?
Those with short-term fund need
Gold loan functions as a working capital loan for businesses for meeting short-term fund requirements. In such cases, a gold loan is looked upon as preferred over a personal loan, as the former comes with a lower rate of interest owing to its secured nature.
Those having a low credit score
As ornament serves as a security or collateral against a loan, the bank is extremely comfortable in advancing the gold loan even to you if you have a low score.
Why should avail for a personal loan despite having gold?
In case you have a pre-approved personal loan offer, and you require instant funds for your instant financial requirement, then you can consider availing a gold loan in place of a personal loan as the processing for it may be faster than a gold loan. If you are also one of those who do not want to put up your gold as collateral or security, then also you may consider availing a personal loan.