Difference Between Gold Loans and Property Loans: Which Should You Choose?

Loans are essential financial tools utilized in various aspects of our daily lives, from funding weddings to addressing medical emergencies. Secured loans, requiring assets as collateral, offer a means to obtain funds and overcome significant financial challenges. However, it's crucial to conduct a thorough comparison between "gold loans" and "property loans" considering the advantages and disadvantages of each, in accordance with RBI regulations.

What are Gold loans?

In simple terms, you secure your loan by using your gold ornaments as collateral. Unlike the complex eligibility criteria for a loan against property, all you need for a gold loan is gold jewelry. This accessibility makes gold loans a convenient option for a wide range of individuals needing short-term liquidity. A designated expert from the lender evaluates the gold to determine its accurate value, which then determines the loan amount. Typically, these loans are short-term, allowing you to borrow up to 75% of the gold's value.

With low interest rates and a moderate tenure, the overall cost of the process is considerably lower compared to other types of borrowing. Interestingly, your credit history plays a minimal role in determining eligibility, meaning even individuals with a low credit score can access a loan.

What are Loans Against the Property?

In this scenario, you must use a property you own, whether residential or commercial, as collateral to secure the loan. Typically, these loans have longer terms, extending up to 20 years or more in certain instances. The loan amount usually equates to around 70% of the property's market value. Interest rates for loans against property and gold loans can vary depending on the chosen bank or financial institution.

While the loan against property interest rate calculator typically offers lower interest rates on average, it's important to note that these loans are usually long-term and can become expensive over time due to accruing interest. Consequently, you may end up paying significantly more than anticipated. Additionally, your credit history significantly influences eligibility, as a low credit score could lead to application rejection.

Now that we have learned some fundamentals of gold loans and property loans, let's compare the different aspects of the loans.

Rate of Interest

Undoubtedly, one of the foremost considerations for a potential borrower is the interest rate when applying for a loan. The benefits of gold loans typically have fixed interest rates and are short to medium-term, spanning from 6 to 18 months. Depending on the lender, interest rates for gold loans may differ. In contrast, loans against property offer both fixed and variable interest rates. Opting for variable interest rates, especially for long-term loans, can pose a significant risk as you may end up paying much more than expected.

Collateral

With a gold loan, you provide gold ornaments as collateral to the lender, which are securely held and returned to you in the same condition upon loan repayment. Conversely, with loans against property, you submit your property ownership documents to the lender, who retains them until the loan is fully repaid.

Eligibility Criteria and Loan Process

Obtaining a gold loan is a straightforward process, requiring only gold assets and essential KYC documents is required for gold loan. However, securing a loan against property entails a more intricate process. Various factors such as property valuation, age, income, financial background, and credit history are meticulously evaluated before approval. In addition to standard KYC documents and financial statements, ensuring the accuracy of property documents is crucial. Any discrepancies must be rectified before initiating the loan application, leading to prolonged and challenging procedures.

Service Charges

Some lenders may impose service charges on both gold loans and loans against property, including a basic loan processing fee. However, loans against property also incur additional pre-closure charges, unlike gold loans. Therefore, if opting for a loan against property, you must cover both the pre-closure charges and the processing fee.

Based on the aforementioned analysis, it's evident that gold loans generally present a more favorable option for borrowing. Nonetheless, the ultimate decision hinges mainly on your specific financial needs. Nowadays, acquiring a gold loan has become increasingly convenient. Unlike other options, Muthoot Finance Gold Loans allows you to apply for a gold loan right from the comfort of your home.

Muthoot Finance Gold Loans offers swift and convenient access to financial support through gold loans, featuring some of the market's lowest interest rates. Further, Muthoot Finance streamlines borrowing, providing an exceptionally affordable option and establishing itself as a trailblazer in the gold loan market. You can utilize the Muthoot Finance gold loan EMI calculator to gain insight into the worth of the gold you intend to pledge and determine the corresponding loan amount you can get.