Loan Against Property Vs. Gold Loan: What’s Better for Urgent Needs?
Instant and urgent money requirements can put up a lot of stress for many. Getting approval for a Personal Loan may not always be possible, particularly when you are already servicing a loan or have a low credit score or likewise. When you are looking to get money in a hurry, however, you may always opt for a secured loan.
Two of the common options that most people can look at are Gold Loan and Loan Against Property. Yet, how effective are these choices when you are in an urgent need of money? Let us take a comparative look at Loan Against Property and Gold Loan for urgent financial needs.
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Swiftness: The swiftness of loan depends on various steps such as filling up the application form, the time taken by the lender for performing all the due diligence, followed by how long will it take for the loan amount to reach your bank account after the approval. As can be easily understood, the actual time will vary depending from lender to lender, but in most cases, the Gold Loan will be faster than a Loan Against Property. The reason behind this is simple. Checking gold authenticity is a much faster process than all the multiple steps involved in LAP due diligence. In a number of cases, you can even Get a Gold Loan in a matter of a single visit, whereas LAP will take at least a week to process.
Processing: Loan Process generally involves the loan applicant filling up the form and lender conducting due diligence with the loan application documentation and property documentation. The process is very simple with Gold Loan. You have to submit your KYC documents, Income Proofs and Address Proofs, physical gold, and gold ownership documents/ bills, etc. The lender has gold assessors on the spot who will check the yellow metal you are pledging. The whole of the process is completed on the spot. With Loan Against Property, the lender will take in all your documents and may have the Property visited and valued by their own property valuation agents and architects, etc. All of this takes a while and does involve considerable paperwork. Many agreements have to be drawn, and there is considerable legwork involved, which makes LAP rather unsuitable for extremely urgent needs.
Loan Documentation: Loan Documentation is necessary for many reasons, including for the lender to adjudge who the borrower is, what is their financial health like if they have ever defaulted on any other loans, and if there is any risk of them doing so in future. This kind of documentation is common in almost all types of loans. If you are taking a Gold Loan, you will have to additionally submit documentation that proves your ownership of the gold being pledged. In most cases, the bill of purchase of gold jewellery or gold bullion will suffice. If you are taking a Loan Against Property, you will have to submit multiple Property related documents, including but not limited to property title deeds, property tax documents, property map, possession certificates from municipal authorities, etc.
Loan Tenure: Loan tenure is the duration for which the lender loans out the money to the applicant. Loan tenure depends on the type of loan and generally can be anywhere between a few months to as long as 10 or even 15 years. Gold Loan is given for shorter periods than Loan Against Property in almost all cases. While some lenders like IIFL give out gold loans for just 11 months, there are banks like SBI who extend Gold Loans for 36 months. In almost all the cases, Loan Against Property is of much longer duration than this. SBI Loans Against Property can easily last between 10 to 15 years. Similarly, ICICI Bank also allows you to take LAP for up to 15 years duration. LAP is better when you want to keep the loan running for a longer duration and have time on your side.
Interest Rates: Interest Rate is a key differentiating factor between Gold Loan and Loan Against Property. Even though Gold Loan is a secured loan, it is generally given on a fixed interest rate. One major factor behind this is because Gold Loans are rather applied for a short duration. The very fact the LAP is always10 years or more means that the LAP is almost always given on floating interest rate.
To reach at the Loan Against Property Interest Rates, lenders will take an external benchmark, commonly repo rate declared by RBI, add their own margin to it and then decide the interest rate on which to lend out a loan against your property. In almost all cases, one can rest assured that the interest Rate on a Gold Loan will be around 2 to 3 % higher than the Loan against Property interest rates.
Loan Against Property is your best choice when you are looking to get a higher loan amount at a decent interest rate and rather for a long time duration. IDFC First Loan Against Property is a choice that is highly recommended by many industry and market experts. The bank provides loans of up to 60% of the property value, which in monetary terms can be as high as Rs 5 Crores. The interest rate of the LAP from the bank is the current repo rate + 3% fixed spread over the external benchmark. The bank allows loan tenures of up to 15 years, and you can spread repayments up to your age of retirement (for salaried borrowers) or the age of 65 (for self-employed borrowers).
Another special thing about IDFC First Loan Against Property is that the borrower does not need to visit the bank branch to apply for the loan. The bank allows you to apply for the loan online or through their mobile app. The minimum age at entry for LAP is 23 years, so it is also very well suited for people who are looking for funds to start their own business.
In all, there is no one-size-fits-all answer. It all depends upon how much money you require, for how long you need, and for what purpose do you require it.
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