Gold Loan Vs. Loan Against Property

When we end up in a financially tight situation, often the first option that we consider is to avail a loan. Personal Loans may be the obvious first choice as well, as they can cater to any kind of short-term financial necessity. However, the high rates of interest charged on them could make you rethink it.

In other cases, the funds that you are in need of may not be covered by what a Personal Loan can offer. In such circumstances, it could be a useful remedy to opt for a secured loan- either a loan against property or a gold loan. If you are caught in a dilemma on which one you should go for, worry not! Here is a useful comparison of gold loans and loans against property,  which will help you comprehend the one that would suit you better, given that every person has means and needs.

Gold Loans

The Indian population does share a rather distinctive affinity towards gold. Each family, no matter what their financial status is, makes it a point to invest in keeping some amount of gold jewellery as a treasured possession. This is a great back-up asset indeed, as gold loans can offer instant liquidity to these gold articles, without having to sell them altogether, if one is just willing to pledge it as collateral in times of a crisis.

Advantages and Disadvantages of Gold Loans

Gold loans, which were once a very common loan medium, have not been as popular over recent years. However, in the current crisis situation, they are certainly regaining popularity by leaps and bounds, Here are some of its characteristics that you need to consider before opting for a loan against gold.

Easy availability: It is easy to get a Gold loan, which makes it an ideal option during an urgent need for funds. Presently, most banks and NFBCs offer loans against gold. The time taken to process a gold loan is pretty short, which means you could get the gold loan amount disbursed within a few hours. This translates into an instant loan facility.

Flexible repayment options: As opposed to other loan types, lenders offer many flexible schemes on gold loans. For instance, you could pay only the interest component during the loan tenure and pay principal at the end of it. The absence of a prepayment fee makes it all the more accessible for people of different financial means. Find out more on the different ways you can repay gold loans over here.

Less consequences: Even if it comes to the worst, in that you are incapable of repaying the loan, the lender can recover its dues by taking possession of the pledged gold. The lender as well as the borrower is faced with a straightforward solution to the recovery problem, as opposed to the case of a loan against property, where the property has to be sold for a price worth the loan. The situation is even more inconvenient in the case of unsecured loans like Personal Loans.

Interest rates: Gold Loans have relatively low interest rates, as compared to personal loans. However, the rates tend to be higher than that of a Loan against Property, as Gold Loans are secured with comparatively less substantial collateral.

Low LTV and short tenure: The Reserve Bank of India does not allow NBFCs to offer loans with Loan-To-Value ratio above 75%. So, if you mortgage gold ornaments worth Rs. 10 thousand, at best you can get only a loan of up to Rs. 7,500. Along with the processing fee and miscellaneous charges, the final amount that you get in hand would be fairly reduced. Gold loans also offer a maximum tenure of 1 year. Hence, make sure you take a gold loan only if you can repay the amount within the short tenure.

Loan against Property

If you have any property registered in your name, you could opt for a loan against your property to finance any of your needs. The value of the loan is calculated according to the market value of the property, as well as your repayment capability.

Advantages And Disadvantages of Loan Against Property

Lower interest rates: Since LAPs are secured loans with substantial collateral as security, lenders are willing to offer much lower interest rates. As compared to that of Personal Loans or Gold Loan this can be quite less.

Tiresome loan procedure: While going for an LAP, the lenders often take quite a lot of time to evaluate the market value of your asset, review the legal documents, and to conduct other background checks such as assessing your repayment capability. As this takes time, you cannot expect to get a loan instantly even in the face of an emergency situation.

Chances of higher financial stress: On Home Loans, you get some tax advantages while paying EMIs. However, the same is not applicable for an LAP. Once you get a Loan against Property, there are several stringent terms and conditions that you have to abide by. Missing payment of EMIs or making late payments could result in a penalty, as per which you could suffer heavy losses.

Non-repayment woes: In a worst case scenario, if you find yourself in a position where you cannot repay the loan, the lender has the right to take over possession of your property, and then auction it in order to recover its dues. This is certainly a heavier blow to the borrower, than in the case of losing a few gold ornaments.

To Sum Up

In case you are in need of quick funds for a short tenure, a gold loan is really beneficial. However, if you are seeking a higher loan quantum with low rates of interest, a loan against property may be the better loan option for you.

Confused about which loan may be best suited for your needs and means? Worry not, as you can compare various loans types and come to the best, most informed conclusion with help from our website. You can also apply for a Gold Loan right away with us, if that is what you deem best.