Borrowers who plan on seeking a loan to finance pressing expenses immediately have several options open to them. We understand that seeking a loan does add to an individual’s existing repayment responsibilities, but with the right loan type, you can address your urgent expenses, avoid breaking into your hard-earned savings and manage your total cost of borrowing.
Of the two broad types of loans available to borrowers in need, the more affordable option is a secured loan. Unsecured loans, such as personal loans are handy to address urgent expenses but at an extremely high cost of borrowing. On the other hand, secured loans are extended against collateral – allowing the lender to offer more reasonable interest rates and terms, as the repayment amount can be recovered through the pledged asset. Here are some of the popular secured loan types:
- Loan Against Property
- Gold Loan
- Loans Against Fixed Deposits
- Loans Against Shares
Borrowers can tend to intuitively lean towards either a loan against property, or a gold loan for immediate funding. Both loan types are extended against collaterals most Indians value and have. However, to avoid billing yourself a high rate of interest on the loan amount you borrow, it is imperative you select the right secured loan. Over that, it is also important to understand what each loan type offers, so you can determine which is better suited for your financing needs.
Difference between Loans Against Property and Gold Loans
For interested loan applicants, the differences between gold loans and Property Loan would be important factors to note before they make their choice. Both loans have their features, but against important aspects like loan quantum, repayment tenor and interest rate – you must consider what the loans can offer.
1. Collateral Type
This point of difference seems a bit obvious, however, the type of collateral you have will help you decide which loan type you should lean toward. Almost all Indian households have a certain amount of gold on them in person. However, when you pledge your gold ornaments and assets as collateral, your lender gets possession of them till you repay the amount.
Loans against property are offered against a property collateral, but lenders permit full usage of the property while you repay the loan amount. Both collaterals can hold emotional value for borrowers, but a gold loan also limits your usage of the gold – that could even be family heirlooms.
2. Repayment Tenor
The loan repayment tenor is a crucial parameter, as this can single handedly decide how feasible repayment schedule can be. It is important for an average borrower to get ample time to repay a large loan amount at their own pace to avoid financial pressure and the risk of delaying or defaulting on their EMI obligations.
Loan against property typically allows eligible borrowers with low risk profiles up to 18 years to repay a loan sanction as high as Rs.5 Crore, while gold loan borrowers often struggle on this count – getting up to 2 or 3 years at best, to repay their loan amount.
3. Rate of Interest
Loan against property enjoys a lower interest rate than a gold loan. Usually, lenders offer loans against property to eligible salaried and professional borrowers starting from 8.60% p.a., whilst gold loan borrowers can bag the loan with interest rates that range between 9.5% to 12%. The rate of interest at which you service the loan should hold immense importance, as that alone decides how expensive or affordable repaying the loan can become.
A lower rate of interest translates to more manageable EMIs, a lower repayment burden and other benefits that bode well for your financial stability and repayment capacity.
