Gold Loans vs Loan Against Property – Key Differences
Sound financial planning can help you manage your essential and regular expenses conveniently. A recurring income, expenditure, and savings outlay can help you handle planned and unplanned financial requirements. However, sometimes, you find yourself amid a chain of monetary situations with short deadlines. Loans are ideal in such circumstances.
Under gold loans and Loans against Property (LAP), you pledge your gold assets or immovable properties as collateral with financial institutions. With the involvement of collateralised assets, these loans can help you pool hefty loan amounts quickly. Though both are secured loan products, several factors make them distinct.What is Loan Against Property (LAP)
A loan against property, also called LAP, is a secured loan where borrowers mortgage their residential, commercial, or industrial property as collateral. The loan amount depends on the pledged property’s market value and legal clearances. It is generally suitable for large loan requirements and offers a longer repayment tenure compared to gold loans.
Difference Between Gold Loan and Loan Against Property
When financial needs arise, secured loans are often the go-to option for many borrowers. Both gold loans and loans against property (LAP) require pledging assets as collateral, but their features differ widely. In the case of gold loans, funds are disbursed quickly since lenders only assess the purity and weight of the jewellery. By contrast, LAP involves detailed property valuation, legal checks, and paperwork, making the process longer but better suited for those seeking higher loan amounts and longer repayment terms.
Understanding the differences between the two helps borrowers choose the right financing solution depending on the urgency, loan size, and asset type.
1. Collateral For Loan Procurement
Financial institutions (FIs) require gold assets as collateral for sanctioning a loan on gold jewellery. The lender assesses the gold's worth per the prevailing market price and offers a certain percentage of the ascertained value as a loan.In the case of a loan against property, you have to mortgage a commercial or residential property with the lender to secure a loan. In both cases, the lender retains the pledged assets with them until the disbursement of the total loan amount (principal and interest). Your lender can liquidate the pledged collateral to recoup the outstanding loan amount in case of payment defaults.
2. Interest Rate Charged On Loans
Gold loans come with fixed interest rates. Generally, lenders offer you multiple repayment schemes to choose from. The repayment period plays a role in deciding the charged interest rate. Interest rates on gold loans fluctuate between a median range of 9.24% to 26%, depending upon the financial institution.Secured loans against property have fixed and floating interest rates. Fixed interest rates do not change with market fluctuations. However, floating interest rates are volatile and keep altering with a shift in market trends. The fixed interest rate on LAP varies according to market.
3. Eligibility Criteria
Most lenders do not perform stringent background checks before processing gold loans. You can quickly get a gold loan with an average credit score as lenders do not rely much on your credit history. They pay attention to the weight, market price, and purity of the pledged gold.The requirements for LAP eligibility involve many complex procedures. Lenders assess your application based on factors like income, property value, existing debts, age, employment status, and credit history.
4. Loan Processing Time
A gold loan is one of the most trusted resources for unplanned cash requirements. These loans are quick to obtain as they follow a simple processing system. Once the lender is satisfied with the pledged gold’s purity and has ascertained its market price, they process your loan application quickly.The LAP loan's processing period is more extended than a gold loan as lenders prefer to verify the documents of the mortgaged property keenly. Therefore, the verification and registration procedure adopted in LAP are pretty time-consuming.
5. Repayment Period
Gold loan lenders allow you to choose between monthly, quarterly, or yearly EMI payments. The length of your repayment plan determines the EMI amount. A shorter repayment scheme can have a higher EMI than a longer one.Loans against a property usually have a longer repayment tenure that exceeds 20 years. Therefore, the LAP will be a superior option for securing a hefty loan at an affordable interest rate and a feasible repayment period.
Both are secured loans, but their suitability depends on urgency, loan amount, and asset type. A gold loan is faster to avail with smaller ticket sizes, while LAP is ideal for higher funding with longer tenures.
| Aspect | Gold Loan | Loan Against Property (LAP) |
|---|---|---|
| Collateral | Based on purity, weight, and gold value (usually lower amounts) | Based on property market value (larger loan amounts) |
| Processing Time | Quick disbursal, often within hours | Longer due to valuation, legal checks, and documentation |
| Repayment Tenure | Short to medium-term (up to 3 years) | Long-term (up to 15–20 years) |
| Interest Rate | Usually higher than LAP | Generally lower than gold loan interest rates |
| Eligibility | Minimal documentation; no income proof needed | Requires income documents, property papers, and CIBIL check |
| Best For | Urgent short-term cash needs | Large expenses like business expansion, education, or medical needs |
Conclusion
Various factors such as interest rate, repayment schedule, and sanctioning procedures help to differentiate between gold and property loans. You can opt for IIFL Finance gold loans to meet your financial emergencies. The platform offers easy gold loans with minimum documentation and flexible repayment schemes. IIFL stores pledged gold in tech-safe lockers and also provide insurance coverage on them.
Frequently Asked Questions
Yes. Loans against property involve a percentage of the loan amount as processing charges. Generally, lenders charge 2% or 3% as processing fees.
The paperwork required for a gold loan is
• Identity proof, such as an Aadhar card or PAN card
• Residence proof, such as electricity bills
• Passport-sized photograph
If you need quick funds for short-term needs, a gold loan is better due to fast processing. For larger financial requirements with longer repayment flexibility, LAP is more suitable. The choice depends on urgency, loan size, and the asset you can pledge.
Interest rates for LAP are generally lower compared to gold loans. Since LAP involves higher-value immovable property as collateral, lenders offer better rates. Gold loans, while quicker to disburse, carry slightly higher interest rates due to shorter tenure and the volatile nature of gold prices.
Gold loans are easier to get approved as they require minimal documentation and no credit checks. The lender only evaluates gold purity and weight. LAP, on the other hand, involves property valuation, legal verification, and income checks, making it more time-consuming and documentation-heavy.
For gold loans, a CIBIL score is typically not mandatory, as the gold itself serves as collateral for the loan. However, for LAP, lenders often check CIBIL and credit history to evaluate repayment ability. A strong credit score can also help borrowers negotiate better interest rates for LAP.
In a gold loan, the risk lies in losing pledged jewellery if repayments are not made on time. In LAP, the stakes are higher since immovable property may be auctioned by the lender in case of default. Both require timely repayment to avoid asset loss.
Gold loans usually come with short to medium repayment terms, typically up to 3 years, making them suitable for urgent cash needs. LAP, on the other hand, offers longer tenures of up to 15–20 years, making it better for financing big-ticket expenses over time.
Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more
