Whenever people find themselves in unexpected financial emergencies, they opt for a personal loan to acquire money. But sometimes opting for a personal loan can add to your worries instead of ending them. There are many things that are uncertain about a personal loan such as eligibility. It may so happen that you are not eligible for getting the loan you applied for or the interest rate offered may not align with what you had hoped for.
In such cases, you can consider opting for either a loan against gold or a loan against property (LAP). Both of these can be considered prudent options. However, to decide which one to choose, you need to know the merits and demerits associated with both of them.
Gold Loan And Loan Against Property Which One Is A Better Option
Gold is the most popular financial instrument against which a loan is taken. Most families in India like to keep some amount of physical gold in their possession, stored either in their houses or their bank lockers. For this reason, gold is readily available to most families if they want to pledge it in return for a loan.
The documents required for a gold loan are minimum because the borrower is also putting up the security and thus, the time taken to process the loan is comparatively less. The amount is usually transferred to you within 4 hours. The tenure is flexible and can be adjusted as there is no penalty even if you pay your debt before the tenure ends. The loan provider does not keep tabs on what you do with the loan money so this makes it very convenient as well. The loan to value ratio is ascertained after determining the purity and quality of gold after which the amount loaned is usually 75-80% of the value of gold. The interest charged is between 10.5 to 16%.
Loan Against Property(LAP)
Residential or commercial property can also be treated as assets and put up as security when you need a loan. This is a convenient loan scheme to get a loan in times of financial crisis. However, the time taken to process a loan against property is much more compared to a gold loan because the loan providers verify the documents as well as perform an onsite inspection of the property to ascertain the market value of it. The interest rates are quite relaxed and vary between 12 to 16%. In case the property in question is owned by two people then the other person also has to sign the loan application as a co-owner.
This is a favourable option for those with a low credit score. Even if the bank checks your credit history, it is not likely to affect whether you get the loan or not as it is a secured loan. Failure to repay the debt within a stipulated time will lead the bank to seize the property.
Which one is a better option?
Unless there is a case in question, it is difficult to just declare either gold loan or loan against property as the better option. The borrower’s circumstance and financial portfolio determine which is the better option for him. For immediate money requirements, gold loan is a better option due to the fast disbursal time of the loan amount. For long term investments, say to fund a business, a LAP will be a better choice.
No matter which loan you are opting for, a gold loan or a loan against property, it is important to keep your financial profile in mind while doing so because after all, it is a debt profile you are entering into and have to eventually repay it. Therefore, only enter arrangements that leave you in a good financial position and help you stay tension-free.