Gold Loan and Loan Against Property – Which One Should You Pick?

People when stuck in a financial emergency tend to apply for personal loans. These loans are tailor-made to support your sudden financial crunch. However, its high interest rate makes it quite stressful on the pocket. Moreover, what if you are not eligible for personal loan? Or what if the loan amount you need is much higher than what you are eligible for in a personal loan? In such a situation, a thought of using your accumulated funds to overcome the tight financial situation might cross your mind. But liquidating assets such as mutual funds and fixed deposits may not be a profitable proposition at all times.

So how should you get out of the situation? Gold loan or loan against property (LAP) can be the answers that you are looking for. If you are wondering which one of the two will be more profitable in your situation, you have come to the right place. In this post, we have pitted the two secured loans against each other for you to understand which one of them can work better for you in times of urgent money requirement.

Must Read : 6 Reasons Why Gold Loan Trumps Personal Loan

1. Collateral

Secured loans are called so because they are protected by an asset or security that acts as collateral, which lenders hold till the loan amount (including interest and other applicable charges) is paid off completely. If due to any circumstance, you are unable to repay loan; your lender will use the pledged collateral to recover the outstanding loan amount.

Since both loan against property and gold loan are secured loans, therefore, to avail them you will have to pledge an asset to lenders as collateral. For gold loan, you need to pledge gold articles in the form of jewellery and coins. Conversely, for LAP, you are required to mortgage your commercial or residential property.

2. Rate of Interest

Rate of interest is the primary consideration for all potential borrowers. Gold loans are offered at fixed interest rates, whereas loan against property rate of interest is given at both floating and fixed rates. Gold loan interest rates vary from 9.24% to 26%, whereas loan against property interest rates (fixed) usually vary from 9.6% to 11.5%.

3. Eligibility Criteria

To get a loan, you first need to be eligible for it. In case of gold loans, lenders do not fuss much about the applicant’s profession, credit score, etc. This in turn proves to be beneficial for all potential borrowers especially at the time of sudden cash crunch as it increases their chances of getting their loan applications approved. Most lenders approve gold loan to anyone between 18 to 75 years of age provided the gold ornaments or coins they pledge is as per the lender’s requirements.

On the other hand, the eligibility criteria for LAP is more stringent than the eligibility criteria for gold loans. It slightly differs from one lender to another but a few common parameters that all lenders consider before approving the loan application include age, income, property value, existing obligations (if any), stability or continuity of a business and credit history.

4. Loan Processing Time

Gold loan is quick and easy to get, thus making it an ideal financial solution especially when you require cash urgently. As its eligibility criteria are lenient, the documentation is minimal, which helps in speeding the loan process. You can get gold loan approval in less than a few hours, almost like an instant loan.

On the other hand, the loan processing time for LAP is longer than that of gold loan. It takes time for lenders to verify all property-related documents. Moreover, if the concerned property has multiple owners, each will be required to submit a NOC (No Objection Certification) to get the loan, which might further stretch the processing time.

5. Processing Fee

To process any loan, lenders levy a charge, which is called processing fee. For gold loan, lenders could levy processing fee of up to 2% of the loan amount. There are also some lenders such as Manappuram Finance Ltd. that do not charge anything to process the loan. For LAP, lenders charge processing fee of up to 2% of the loan amount, which may vary depending on each lender’s policies and terms and conditions.

6. Repayment Tenure

Repayment tenure is the period till which you have to repay the borrowed money to the lender. Longer the loan repayment period, shorter will be the EMIs, which will resultantly make easier for you to pay back the borrowed money. But by choosing longer repayment tenure, the total interest pay-out will be higher.

Gold loan can be repaid in a year. On the other hand LAP repayment period is generally up to 20 years. Since gold loan repayment tenure is short, it will have high EMIs. Therefore, this loan is recommended to people who want small amount of money. For a huge loan amount, LAP will be a better choice. Its long repayment tenure will make your EMIs short and help you pay back the borrowed money more easily.

7. Documentation

Gold loan documentation is very simple and does not require a stack of papers during the application process. Potential borrowers need to submit a few documents such as signed loan application form, two passport size photographs and a copy of the proof of identity and residence. For LAP, the list of documents required at the time of loan application is a bit longer. It requires applicants to submit a signed loan application form, proof of identity, proof of income and proof of residence.

Also Read : Gold Loan Benefits

Conclusion

Whether gold loan or loan against property will be beneficial for you depends on your requirement. Gold is an asset that most households possess. It is highly liquid and holds great value in the market. As gold loan has short repayment period, it would be the most suitable for a low loan amount. LAP does not incur high rate of interest and also has long repayment period, therefore, it is best suited if you want to borrow a large amount of money. At the time of financial emergency, gold loan should be your first choice as it has lenient eligibility criteria, minimal documentation and less processing time.