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How to Choose between Loan Against Property, Loan against FD and Gold Loan?

2021-08-12
2 Min Read
Author - Neha Wadhwa
How to Choose between Loan Against Property, Loan against FD and Gold Loan?
538 views

Lenders sanction secured loans when you pledge a security or collateral. The most commonly owned assets against which you can avail loans are property, fixed deposits and gold loans.

While the most common way of availing funds is borrowing against an asset, it is crucial to identify the best type of loan per your usage and requirement.

Three crucial parameters can help you choose the best-secured loan, the collateral required, the rate of interest, and the loan tenure. But, first, let us evaluate all the loans based on the factors mentioned earlier:

Gold Loan

  • Gold loans are one of the preferred and easiest options to avail funds, especially in times of uncertainty, as you can avail the loan with minimum documents for KYC and residence proof. To avail of a gold loan, you are not required to submit any income proof.
  • There is no restriction on the end usage of gold loans. You can use a gold loan for both personal or business needs.
  • Banks & non-banking financial institutions provide gold loans without any CIBIL score.
  • A gold loan provides multiple options for gold loan repayment. You can repay a gold loan using methods such as bullet repayment, EMI option and overdraft facility.
  • The time required to avail of a gold loan is minimal compared to other forms of secured loans. Banks and non-banking financial institutions process gold loan applications digitally in a few hours.
  • You can avail of gold loans for loan tenure ranging from 1 day to 9 months.

Additional: There are certain restrictions on availing of the gold loan as well. For instance, to avail of a gold loan for higher amounts, you need to have at least 18-carat purity. Therefore, the higher the purity of gold assets, the higher will be the loan amount.

Loan against Property

  • If you own some property in your name or jointly with someone you can apply for a loan, you can avail of a loan against property.
  • A loan against property comes with a longer repayment tenor upto 20 years.
  • Banks fund upto 80% of the value of the property as a loan against property

Additional- You can also claim tax benefits on loans against property in specific cases depending on the usage of the money borrowed. For instance, under Section 37(1) of the Income Tax Act, you can claim the interest paid, the incidental costs, such as processing fee and documentation charges, as business expenditure.

Fixed Deposits

  • You can avail loan against FD without breaking FD. Banks & non-banking financial institutions provide upto 90% of the deposit amount.
  • The rate of interest on loans against fixed deposits is 1-2% above the FD rate.
  • Most of the lenders do not levy any processing fee or prepayment charges on these loans.
  • You can avail loan against FD for a maximum tenure of 5 years.

Additional: The amount of funds that you can avail against FD depends on the investment in the fixed. It would be best if you thus had an FD whose deposit value is at least 10% more than the loan you are borrowing. For instance, if you need to avail of the loan amount of Rs 2 lakh against your fixed deposits, you need to have an FD of around Rs 2.2 lakh.

Bottom Line: All secured loans, however, come with consequences if you default on the repayment. In the case of secured loans, you may stand to lose your asset in case of default. In addition, if you fail to repay the loan on time, banks will seize your pledged asset to recover the outstanding balance. It will also hurt your credit history and score. So you must borrow only as much as you need and repay the loan on time.

About Author

Neha Wadhwa
Neha is a mass communication postgraduate. She works here as a senior Content Writer with a total work experience of 3 years. She loves to write on different genres mostly humour based lifestyle stories on trending real life topics.

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