Which is Better – Gold Loan with an EMI Option or Overdraft Facility?

Even if you have a low credit score, a good amount of gold can help you get out of a financial emergency. Like personal loans, no lending institution has defined the purpose for which gold loan can be used. Whether you have to fund a family vacation abroad, destination wedding, child’s higher education or any other urgent financial requirement, a gold loan is a quick and sure shot solution for it. Moreover, since the gold loan is a secured loan, its interest rates are lower than the interest rates of personal loan.

Additionally, lenient eligibility criteria, minimal documentation, and quick loan disbursal are other features that make gold loan quite a popular loan option among customers. Another detail in which you will be quite interested in is that gold loan comes in various schemes to suit your financial requirements. The ones that we are going to discuss here are a gold loan with an EMI option and gold loan with an overdraft facility. If you are planning to apply for a gold loan in the near future, you must understand the difference between both of these gold loan schemes so that you can pick whatever suits your fund needs the best.

Difference between Gold Loan with Overdraft Facility and EMI Option

To meet different requirements of different customers, a gold loan is offered with overdraft (OD) facility and EMI option. Which one of them should you choose depends on your financial requirements. To help you make an informed decision, let us understand what each one is about:

Gold Loan with an EMI Option:

A gold loan with an EMI option is a walk-in credit facility. In this, you just visit your lender’s nearest branch, pledge your gold and submit the necessary documents. On the basis of the regulations of the lending institution, you get a fixed loan amount for a fixed tenure with regular repayments in the form of EMIs.

Both NBFCs (non-banking finance companies) and banks offer this facility. Banks usually offer at least 80 percent of the value of gold as a loan. On the other hand, NBFCs offer up to 60% of the value of gold as a loan. There is also an upper cap on the loan amount that a lender can sanction. Most banks sanction gold loan give a loan up to Rs.75 lakhs to Rs.1 crore. As far as the gold loan interest rates are concerned, it usually ranges from 10.45% to 24%.

Gold Loan with Overdraft Facility:

In this, your gold loan amount is the overdraft facility. It is working similar to a credit card spending. You can spend as much as you need anytime anywhere but up to the allowed credit limit. The gold loan interest rate will be applicable only on the amount you use.

When you deposit your gold as collateral to your lender, they open an overdraft account in which the loan amount for the value of gold pledged will be credited. Some banks allow you to withdraw the gold loan amount using your debit card from an ATM of any bank. And some link it to your savings bank account or open a new overdraft account. Some lending institutions even open a new account with the benefits and features similar to a current account. Other ways to access the loan amount is using a cheque which is issued separately for the overdraft account. In case of the overdraft facility, the interest rates are comparatively higher than the usual. Also unlike gold loan with EMI option, the payment option in overdraft facility is in a lump sum and can be closed anytime.

Conclusion

Choosing between a gold loan with an EMI option and gold loan with an overdraft facility depends on your convenience and fund requirements. Overdraft facility allows you to pay interest only for the loan amount used. However, the interest calculation differs in case of the gold loan with an EMI option. A gold loan with an EMI option is best suited for making planned expenses. In this, you can also plan your loan repayments in the form of EMIs from your earnings. On the other hand, a gold loan with overdraft facility is best suited for smaller emergency expenses and usual business capital requirements.