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Gold Loan and Loan Against Property: Which One is a Better Option? Research Team | Posted On Wednesday, January 15,2020, 05:33 PM

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Gold Loan and Loan Against Property: Which One is a Better Option?



When stuck with a financial dilemma we often consider applying for a personal loan. But high-interest rate on a personal loan can add on to your financial woes instead of reducing them. Opting for gold loan or loan against property may prove to be affordable and useful remedies in such situations. Let’s take a quick look into the features of gold loan and LAP to understand which can work better for you during financial emergencies:

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Loan Against Property:

If you are stuck by a financial emergency and need affordable credit, then you can apply for a loan against property. In this type of loan, you can access the fund by providing a commercial or a residential property as collateral. The amount of loan you can get depends on the market value of your property.

See Also: Advantages of Gold Loan

Some of the features of the LAP are as follows:

  • Since these are secured loans, lenders often offer relaxed interest rates to borrowers. The interest rate ranges from 12% to 16% which is comparatively lower than a personal loan.
  • Both banks and NBFCs offer loans against property for longer tenures. Thus you can select the lender at your convenience.
  • The loan is sanctioned after the verification and authentication of the property and the documents. The property evaluation will be carried out by the lender and the interest rate will be decided accordingly.
  • Residential or commercial property or land can be used as collateral.
  • The loan amount will be a percentage of the property’s market value. In case the property has a co-owner, the co-owner must sign the loan as co-applicant.
  • This loan is a favorable option for people with a lower credit score. Though the bank conducts a credit check before sanctioning the loan, you are likely to get the loan sanctioned since it is a secured loan.
  • These loans are not approved instantly. The approval of LAP takes time due to various factors like evaluating the market value of your property, reviewing the legal documents and doing other background checks like your repayment capacity.

See Also: Need for a Gold Loan

Gold Loan:

Gold is one of the most traditional forms of investment in India. Most of the families prefer to keep some quantum of physical gold in their possession and thus gold loan is not a new concept. Previously, people pawned gold with private moneylenders in return of high-interest loans. With the introduction of the gold loan in the organized sector, people can avail of quick and affordable loans by mortgaging physical gold.

Given below are some of the key features of gold loan:

  • Physical gold like gold ornaments and gold bullion are accepted by banks and NBFCs as collateral assets. However, gold bars are not accepted as assets for a gold loan.
  • The key feature of gold loan is that they can be easily availed. These are an ideal way to get funds during emergencies. The overall processing time is less and the loan gets sanctioned within an hour.
  • The tenure for gold loan is highly flexible and can range from one month to a maximum of 3 years. The repayment tenure is usually fixed depending on the amount of loan sanctioned to the borrower.
  • The purity and the weight of gold ornaments are evaluated by an in-house evaluator and the valuation excludes the value of precious stone and gems that are a part of the ornament.
  • You need to carry out minimal documentation and do not need a strong credit score to get the gold loan sanctioned. In case of default in payment, the lender has the right to confiscate the gold.
  • The banks usually charge an interest rate of 10.5% to 16% on gold loans. Some additional fees must be incurred by the borrower like a processing fee of 2% on the loan.

See Also: What Is A Gold Loan?

Which One is a Better Option?

We cannot compare both the loan side by side and get a clear winner as the benefits of both depends on the circumstances of the borrower. For example, if there is a medical emergency and you want to avail funds quickly then a gold loan is beneficial for you. It requires minimal documentation and has a lenient eligibility criterion. But if you want to avail a higher quantum of funds at an affordable interest rate for funding your business or home renovation then loan against property can be a good option for you.

You must also consider other aspects like your repayment capacity while availing such loans. Gold loan can be your go-to option for smaller loans as they have smaller repayment periods. However, if you are seeking credit with longer repayment tenure then LAP is what you should opt for.

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