Loans are the most sought after financial instruments that help people fulfill their varied cash needs. They come in all shapes and sizes with different interest rates and repayment options. Loans can be categorized as a secured and unsecured loan. A secured loan is one where you have to put your personal assets on the line as collateral, whereas an unsecured loan doesn’t need any type of collateral. When stuck in a financial emergency, whether it is for children’s education, marriage, starting or expansion of a business, vacationing abroad, or even a healthcare emergency, you are provided with two lucrative options – gold loan and loan against property.
LAP and gold loans are both secured types of loans. Now, choosing between the two can be a lot difficult because both offer lots of perks to the borrower.
Keep on reading as we break down both types of loans to help you make an informed decision.
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Gold Loan vs. Loan Against Property – what’s the difference
Gold has always been a part of the unorganized lending sector in India from ancient times. Today, it has become a part of the organized lending sector, with the majority of the lending institutions offering gold loans.
You can avail a gold loan against gold coins and gold ornaments you possess. The loan amount will be decided based on the evaluation conducted by an in-house expert. Often, lenders sanction 75% of the gold’s total value as the loan amount.
You will have to deposit the gold against which you are taking the loan to the lender. It will remain in the lender’s custody until you repay the loan.
The negative aspect of a gold loan is that its tenure is much shorter, and so is the loan amount. Therefore, the monthly EMIs can be higher. Also, since the price of gold is always changing, it can significantly increase the interest rates of the loan.
Loan Against Property
A loan against property, on the other hand, is somewhat similar to a gold loan. But the difference here is that you pledge your commercial or residential property instead of gold as collateral.
The benefit of this type of loan is that it comes with longer tenure, which is up to 20 years. Moreover, the loan amount is also higher. Since real estate is a booming market, property prices are always on the rise. With LAP, you can get a loan amount of up to 70% of the market value of your property. Also, longer tenure means the LAP loan interest rate is also lower.
In short, if the market value of your property is high, you will get a higher loan amount. That is, the loan amount can go as high as ₹1 crore for salaried borrowers and up to ₹5 crores for self-employed borrowers.
Which one to choose?
In conclusion, if you want a higher loan amount on flexible tenure and EMIs, then you should go for a LAP. Moreover, if you don’t need surplus funding, then a gold loan should be on your radar.