Loan option: a property loan, an FD loan, or a gold loan?

Loan option: a property loan, an FD loan, or a gold loan?

From Ben Allen

Security or collateral is a way for lenders to sanction secured loans. The most common assets against which you can loan are property, fixed deposits, and gold. Borrowing against an asset is the most common method of ...

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Security or collateral is a way for lenders to sanction secured loans. The most common assets against which you can loan are property, fixed deposits, and gold. Borrowing against an asset is the most common method of obtaining funds, but it is crucial to determine the type of loan that best fits your needs. You can choose the lowest gold loan interest rate by considering three factors: the collateral required, the interest rate, and the loan tenure. First, let's look at all of the loans based on the factors mentioned earlier:

Know Something about Gold Loans

  • A gold loan is one of the simplest and most preferred methods to borrow funds, especially during difficult times, since you only need to provide proof of your identity and residence. Gold loans do not require you to submit proof of income.

  • There are no restrictions on how gold loans can be used. Business or personal uses are both acceptable.

  • Banks and non-banking financial institutions provide gold loans without a CIBIL score.

  • Gold loans come with multiple repayment options. There are several ways you can repay a gold loan, including bullet repayment, EMI option, and overdraft facility.

  • Compared with other forms of secured loans, obtaining a gold loan takes a short period. Gold loan applications are processed digitally by banks and non-banking financial institutions in just a few hours.

  • Depending on the loan duration, you can get a gold loan for one day up to 9 months.

  • Furthermore, there are some restrictions on availing of gold loans. For instance, to qualify for a higher amount of gold loan, your gold needs to be at least 18-carat pure. As a result, the loan amount will be higher than the gold's purer.

What is Loan Against property?

LAPs are secured loans provided by banks, housing finance companies, and non-bank financial institutions against residential or commercial properties. Most lending institutions offer these loans at a lower interest rate than a personal loan or a business loan, and they are dispersed in a reasonable amount of time. Such loans are available to anyone with a pre-owned property, whether salaried or self-employed in a business or professional setting.

  • You can apply for a loan if you own a property in your name or jointly with someone, and you can borrow against your property.

  • The repayment period is longer, up to 20 years with a property loan.

  • Normally, banks lend up to 80% of the value of a property as a loan against it.

Furthermore, you can also claim tax benefits on loans against property based on the usage of the money borrowed. Among other things, the gold loan rate today and incidental costs, such as processing fees and documentation charges, can be considered business expenses. 

Both business owners and salaried employees benefit from a loan against property. Those who are self-employed and seek funds to expand their businesses can utilize this facility. A professional working in a salaried role may find themselves facing a sudden medical crisis that may require long-term treatment, such as surgery, or sending their children to a foreign university for higher education. In addition to leaving one's savings intact, a LAP provides low-cost EMIs and long repayment terms up to 20 years. Since the interest rate is low, monthly payments are reduced.

Existing customers can also apply for a 'top-up' loan, which depends on several factors, including the repayment history of a pre-existing home loan and the outstanding balance, monthly income, and Loan to value ratio.

What is Fixed Deposit

Fixed deposits provide guaranteed returns. The interest rate you receive on an FD remains constant throughout your tenure. FDs will not be affected by falling interest rates in the broader market. Consequently, you will not have to worry about market ups and downs. Here are some of the things you need to know about FDs

  • Without breaking your FD, you can apply for a loan against it. Banks and non-banking financial institutions provide approximately 90% of the deposits.

  • Loans against fixed deposits carry an interest rate of 1-2% above the rate of the FD.

  • Most lenders do not charge processing fees or prepayment charges for these loans.

  • A maximum of five years can be taken out as a loan against FD.

Investment in the fixed will determine how much you can borrow against FDs. It would be best for you to have an FD whose deposit value is at least 10% more than the loan amount you intend to borrow

How to choose between gold loan, LAP, and FDs

If you default on a secured loan, you will have to pay penalties. Secured loans may result in the loss of your asset in case of default. Banks will also seize your pledged asset if you fail to repay the loan on time. Your credit report will be adversely affected. Therefore, you need to borrow only the amount you need and repay the loan on time.

If you want a hassle-free procedure for the gold loan, you can consider choosing Rupeek, one of the largest gold loan provider companies that provide a range of services to their customers.

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