Gold Loan Vs. Loan Against Property - What Is The Difference?
Gold loans and Loans against property are forms of secured lending. Get to know the difference between gold loan & loan against property Now!
A person may find himself or herself in a position where the need for financial resources—be it for a personal requirement or for one’s business establishment—exceeds the source of income. In an ideal situation a short-term expense should be met through savings or regular incomes. This can be, typically, for expenses to be incurred for a family wedding, a medical emergency, a foreign vacation or children’s school or college fee.
At times, people end up putting their hand on long-term savings for meeting short-term cash needs, which is something one should avoid. This is because one can avail a loan based on one’s requirement without disturbing savings meant for more critical future expenses.
A gold loan is seen as the best option to raise money for short-term needs. It is a simple product that has existed for centuries in the country with local moneylenders. A person pledges gold jewellery that he or she owns or is part of a household’s wealth. The lender uses it as a collateral or a security and can dispose it off in the market to recover the money in case of a default.
Here are some salient features of a gold loan:
• Quick Cash:The money is disbursed swiftly as soon as the loan application is processed and the borrower agrees to the terms. In effect, it involves a representative of the lender coming to value the gold article. Based on that, the lender makes an offer which, if accepted, can provide the green signal for almost instant disbursal.
• Low Interest Rate:Gold loans come with much lower interest rates compared to personal loans.
Loan Against Property
While a gold loan is a good product to pick, often one’s capacity to borrow against gold articles is restricted by two things. One is a reticence to pledge personal or family jewellery, even if temporarily. But a bigger factor is that the quantum of idle gold jewellery is usually not huge. Also, lenders advance a loan equal to only 75% of the value of the yellow metal in the old jewellery. This additionally restricts how much one can borrow.
Here, another option presents itself in the form of a loan against property. One can avail a loan against a self-owned real estate property that is lien-free or does not have an outstanding loan already.
Notably, this does not require the property to be a fully built one but can also be a piece of land.
Here are some quick points for a loan against property:
• Eligibility:A loan against a property can be availed by self-employed and salaried individuals, as also partnership firms and private limited companies.
• Basic Documentation:Besides basic know-your-customer documents such as those covering identity and address and proof of income, this loan also requires one to submit entire chain of ownership of the property being pledged.
• Verification:Once an application is made, the lender goes through a rigorous verification process, especially on how clean are the property ownership records as that is the key collateral in case of a default.
Differences Between Gold Loan and Loan Against PropertyWhile both gold loans and loans against property are forms of secured lending, or loans against a collateral, there are certain important differences between the two.
• Ticket Size:A gold loan is dependent on the value of gold in an ornament and most people own a small quantity of gold jewellery. Outside of people who have high net-worth, it is virtually impossible to think of people who own gold jewellery of more than say 500 grams. Given the current gold prices and loan to value ratio, this means a person can barely avail a loan more than Rs 20 lakh, even after assuming he or she has that much gold jewellery. A loan against property, on the other hand, can be much higher as even a middle-class family in large cities resides in apartments worth over Rs 1 crore.
• Usage:There are differences in size and the time it takes to get a loan approval. The time required is longer for a loan against property due to the more complex nature of property valuation and verification. So, if one has a requirement of a smaller amount and quickly, one should opt for a gold loan. If one needs to borrow a large sum, say for a business expansion or for financing children’s higher education, one should opt for a loan against property.
A gold loan and a loan against property are both secured debt products. However, given their nature they have some key differences where by default the amount under a gold loan is limited by size while that of a loan against property is typically much higher. As a result, the use-case of a gold loan and a loan against property is different. The two products also have different processing times and verification procedures.
IIFL Finance, one of India’s top NBFCs, offers both golds loan and loans against property at competitive interest rates with minimal documentation and quick disbursal.