A financial crunch leaves you with a few options. You either liquidate your assets or pledge them for a loan. Asset-backed loans make sense, helping you raise funds and retain your asset.
Of all asset-backed loaning options, Loan against Property and Loan against Gold are perhaps the most sought after. But which one is better for you? Let’s explore parameter by parameter.
What is Loan against Gold?
You pledge gold bars or gold bank coins for a loan. That’s Loan against Gold (LAG) for you. The pledged gold should meet a certain purity standard to be eligible. The possession of the gold stays with the lender for the entire term. You can reclaim it once the loan is repaid in full. Like LAP, LAG is also not earmarked for a specific purpose, and readily available.
What is Loan against Property?
Loan against Property (LAP) involves mortgaging a property for a loan. The mortgaging options include a self-occupied or rental residential property, a plot of land, or commercial premises like shop or office. The rights of the property stay temporarily with the lender and returned to you once repayments are made in full. You can use the property for the entire loan term.
The end-use restrictions are not applicable, meaning the funds can be used for any legal purpose. Plus, the loan against property eligibility criteria is easy and documentation simple.
Which one works well for you?
Let’s run through a comparative analysis of the two loaning instruments for informed decisions.
If you are keen on an affordable loan, LAP is the way to go. The prime contributor for the overall cost of borrowing, interest rates are lender-specific. Specifications may vary from one lender to the other, but LAP interest rates could be as low as 8.70%, while the same in LAG starts from 9.15%. You can save big on interest outgo with LAP, as the interest is compounded. Even a minor variance in interest rates can add up to significant amounts as the tenor progresses.
Loan against property and loan against gold are two different credit options with two different tenors. The former is a long term option while the latter, a short term one. You get anywhere between 12 months and 20 years to repay a LAP, and three months to 12 months to compensate a LAG. LAP offers a higher degree of flexibility in repayments. You can opt for a lengthier tenor if your income is low or unstable, and vice-versa. It’s all about your repayment capacity.
Whether it’s LAP or LAG, the risk to the asset is there. You’ll lose it in the wake of repayment default. But LAP has the edge over the LAG when it comes to the asset usage. The pledged property’s papers will be with the lender, but you can continue using it during the entire tenor. On the contrary, the pledged gold will stay in the lender’s possession until the debt is paid off.
Loan against Property eligibility criteria is more comfortable than the Loan against Gold’s. Just put together your ID and address proofs and property documents and walk away with the loan.