What is the Difference Between a Gold Loan and a Loan Against Property?

Secured and unsecured loans are among the best ways to access funds in an emergency or for any other immediate requirement. Generally, people prefer secured loans as they assure them of high-value loan amounts at lower interest rates and favourable terms in lieu of valuable collateral. Of these, gold loans and Loans Against Property are the two most common types of secured loans.  

What is a Gold Loan?

A gold loan is availed by placing gold as collateral against which borrowers can obtain loan amounts up to 75% of the pledged gold’s current valuation. These are usually short-term loans with low-interest rates and moderate tenors. Moreover, lenders are not very stringent about your credit history or CIBIL score allowing you to secure loans even with low credit scores. 

What is a Loan Against Property?

Borrowers need to pledge either a residential or commercial property that they own as security to take up a Loan Against Property (LAP). Also known as property loans or mortgage loans, they extend for a longer duration.

The rate of interest on gold loans is normally fixed. Whereas, the interest rate for a Loan Against Property can be tendered at either fixed or floating interest rates.  

One can avail of high loan amounts of up to 80% of the pledged property’s market price. The interest rates on a property loan are competitive and credit history is crucial to loan eligibility. Hence, a low CIBIL score may not fetch you ideal loan deals.   

Difference Between Gold Loan and Loan Against Property 

Having emergency funds handy is important, especially at a time of crisis. In this regard, often people favour instant loans such as a gold loan. However, those in the need for instant funds can also consider a Loan Against Property, in order to benefit from lower interest rates. In a comparison between gold loan and Loan Against Property, these are the factors that can help you make the right decision:  

1.Collateral and Loan Amount

Both gold loan and Loan Against Property are secured in nature wherein you pledge self-owned gold or property to avail of the required funds. Lenders hold the asset as surety against the sanctioned amount until the sum is repaid in full. In case of a default, they can recover the outstanding loan by taking over the pledged assets.  

The nature of your collateral determines your loan principal. Gold loans are approved based on the total cost of the pledged gold. And for a property loan, the value of your mortgaged property influences the loan amount fetching a larger sum.  

2.Rate of Interest

The rate of interest on gold loans is normally fixed. Whereas, the interest rate for a Loan Against Property can be tendered at either fixed or floating interest rates. Since the gold market is volatile, the gold loan interest rates are usually higher than LAP interest rates. 

3.Eligibility Criteria

The eligibility parameters for gold loans are much simpler than those for unsecured loans. Nevertheless, one must prove ownership of the pledged gold through valid receipts.  

The Loan Against Property eligibility requirements are more extensive than gold loans. The general eligibility criteria include an applicant’s age, income, property value, nature of employment, existing debts, credit score and history, etc. Further, the pledged property should be registered under the applicant’s name without any ongoing mortgages or litigations. 

4.Documentation Requirements

The documentation for a gold loan is very basic. All you need are:  

• Duly filled application form  

• Proof of identity 

• Address proof 

• Passport-sized photographs 

• Ownership documents of the pledged gold 

Conversely, a Loan Against Property documentation as given below is more detailed since it impacts the LAP approval process: 

• Mandatory documents such as PAN card or Form 60

• KYC documents 

• Proof of income and employment 

• Bank statements 

• Property-related papers

Note: Additional documents may be required during loan processing especially if the mortgaged property has multiple owners.  

5.Loan Processing Time

Typically, gold loans have a quicker processing time due to flexible eligibility and minimal paperwork. They can be approved within hours allowing you to avail of instant cash. This is one of the primary reasons that borrowers choose gold loans over a Loan Against Property.  

On the other hand, a mortgage loan necessitates a longer processing period, which may take several days since lenders need time to conduct mandatory checks on an applicant and his/her mortgaged property, verify the furnished documents and more.  

6.Processing Charges

Applicants have to pay a specific fee to lenders for processing their loan applications. The fee levied on a gold loan is about 2%* of the borrowed sum. While for a Loan Against Property, these charges may be up to 7% of the sanctioned amount + GST (as applicable), some lenders even waiving them off.

7.Repayment Tenor

The repayment tenor on a gold loan is much shorter as compared to a Loan Against Property. It may extend up to three years or more, while the repayment period on a mortgage loan can go up to 17  years.

Read Also: Pick the Right Loan Against Property Tenor 

The Final Word

When comparing the advantages and disadvantages of a gold loan and a Loan Against Property to establish which is a better option, the decision rests on how effectively the loan supports your financial needs. Gold loans may offer instant liquidity but if one requires a heavy loan amount, gold might not suffice. At such times, a Loan Against Property can be a better alternative because it gives borrowers a longer period to repay the EMIs without straining their budget.   

*Terms and conditions apply.