Since liquidating assets like fixed deposits or mutual funds on an emergency basis is not a profitable idea, loans work as a great savior during those times. Loans provide you with access to instant credit in a hassle-free way. But to get a loan, you need to meet specific eligibility criteria, which varies according to the loan type. This is one of the reasons that limit the probability of loans. If you are looking for the most secured, easily accessible types of loans, you can consider loan against gold and loan against property (LAP). These two types of loans provide you with instant cash in exchange for collateral. The practice of taking loan against gold India has a long history. Earlier it was a part of the unorganized lending sector. Now, it has changed.
A gold loan is a type of loan that is taken from a financial institution by pledging gold articles as collateral for a predetermined period. The loan against property(LAP) requires a borrower to pledge their private or commercial property as collateral. The loan against gold tenure period is shorter than a loan against property.
Here let us discuss the attributes of both a gold loan as well as a loan against property and discover which one serves better during urgent needs.
Purpose of Gold Loan or LAP
A loan against property and a gold loan are a form of instant loan. Their purposes are different. While gold loans can serve multiple purposes like expenses incurred during medical treatment, business expansion, studying abroad and holiday, loan against property is mainly used for business expansion, buying or decorating dream homes and so on.
Interest rate
The interest rates for gold loan India is fixed. Currently, it ranges from 7.50% to 12.50% for a tenure up to 36 months. The interest rate for a loan against property, however, is both floating and fixed. It rages within 8.45% to 22%. The amount of the sanctioned loan in terms of a loan against gold depends on the pledged gold’s purity and market value. In the case of a loan against a property, the same depends on the property’s market value.
Collateral terms
Gold loan and loan against property are secure types of loan. They provide confidence to the lender. If a borrower is unable to repay the loan amount on time, the lender will have the full authority to auction off the pledged asset to recover their principal amount.
Eligibility criteria
While applying for a jewel loan, there are no hard and fast eligibility criteria that need to be followed. Borrower’s profession or CIBIL score plays no part, anyone above the age of 18-75 can apply for this type of loan pledging their gold articles. This provides borrowers with more chances of getting their loans approved.
Eligibility for a loan against property is more strict. Individuals aged between 18 to 70 years need to submit the latest salary slips, identity proof, bank account statement, mortgaged property documents and a minimum CIBIL score of 650.
Repayment tenure
Repayment tenure refers to the time frame within which you are supposed to repay the borrowed money to the lender. While for a loan against property, you get a tenure period of 20 years, for a gold loan, the repayment period is 12 months. A higher tenure period means the EMIs are less. So, it is always recommended that if the amount of the borrowed money is less, a gold loan is ideal. But if it is a lot, paying the EMIs for a longer tenure is better.
Processing fees
In terms of gold loan, the processing fee for some lenders is zero and some ask for a processing fee of up to 2% of the borrowed amount. For loans against property, most of the lenders ask for a 2% processing fee. The percentage can vary from one lender to another.
Processing time
Processing time for loan against gold is minimal, it allows you to get instant loan at the time of emergencies. Simple documentation and eligibility criteria make the whole application procedure smooth and fast. Be it online or offline, you can get a loan against gold approved within a few hours. In the case of a loan against property, the application procedure takes longer than a gold loan. It is time-consuming, as the lenders go through all the property-related documents and verify them. If the property has multiple owners, then a NOC submission is mandatory. This makes the processing time go even further.
So, as discussed above, both loan against gold and loan against property are favorable when meeting sudden financial crunch. You can compare the two types of loans based on their purpose, tenure, eligibility and select the one that checks all the boxes in your favour. Opting for a loan against gold is best if you need a minimum amount. Because you will get it instantly and the tenure period is also shorter. Go for a loan against a property if the amount is huge. You can break it down to smaller EMIs and repay back through a longer tenure period.
