When it comes to loans, there are many options available in the market. However, two types of loans that are in high demand are gold loans and home loans. While both these loans help individuals to meet their financial needs, they differ in various aspects.
What is a gold loan?
Gold loan is a secured loan that is availed by pledging gold ornaments or jewellery as collateral to the lender. It is a short-term loan that is easy to obtain and helps individuals during emergency situations. The loan amount sanctioned varies depending on the weight and purity of the gold pledged. Gold loans have gained immense popularity in India to meet various financial requirements such as medical emergencies, education expenses, business expenses, etc.
What is a home loan?
Home loan, on the other hand, is a type of secured loan that helps individuals to purchase a property. It involves mortgaging the property to the lender for a specified tenure and paying equated monthly instalments (EMIs) for the loan repayment. The loan amount and repayment tenure depend on various factors such as the property value, the borrower's income, credit score, etc.
Difference between gold loan and home loan
- Interest rates: The interest rates for gold loans are higher compared to home loans. Gold loans come with an average interest rate of 10%-15%, while home loans offer interest rates ranging between 7%-9%.
- Repayment tenure: Gold loans are short-term loans that come with a maximum repayment tenure for gold loan of 1-2 years. Whereas home loans have a longer repayment tenure, which can extend up to 30 years.
- Loan amount: The loan amount sanctioned for gold loans depends on the value of the gold pledged. It is usually 70% to 80% of the gold value. Whereas in the case of home loans, the loan amount depends on the property's value and ranges between 75%-90% of the property cost.
- Purpose: Gold loans are generally availed for emergency purposes, whereas home loans are availed for long-term investments such as purchasing a home, constructing a house, or renovating a property.
How to choose between a gold loan and a home loan?
Choosing between a gold loan and home loan depends on various factors such as the individual's financial requirements, loan repayment capacity, and future goals. If you require funds immediately and have gold ornaments, gold loan is the best option. However, if you are planning to purchase a property, home loans can help you achieve your long-term goals.
In conclusion, both gold loan and home loans are popular borrowing options that help individuals meet their financial needs. However, they differ in many aspects such as interest rates, repayment tenure, loan amount, and purpose. Therefore, before deciding which loan to choose, one must understand their financial requirements and choose accordingly.
Gold loan vs. home loan eligibility and interest rates
When comparing gold loan vs home loan eligibility, the differences are clear. For a gold loan, eligibility is straightforward, as the loan is secured against your gold jewellery. Most financial institutions require applicants to be at least 21 years old, with minimal documentation to verify identity and ownership of the gold.
On the other hand, home loan eligibility depends on several factors, including income, credit score, age, and employment status. A stable source of income and a good credit score significantly enhance your chances of approval.
Interest rates also vary. The interest rates on gold loan are higher due to their shorter tenure, while home loans generally offer lower rates but for longer repayment periods. Therefore, if you are looking for quick funding, a gold loan might be suitable, but for long-term, lower-interest finance, a home loan could be a better option.
Gold loan vs. home loan documentation requirements
The documentation required for gold loans is minimal. Applicants usually need to provide a valid ID proof, address proof, and ownership proof of the gold being pledged. This makes the gold loan process quick and easy.
In contrast, a home loan involves a more extensive documentation process. You will need income proof (salary slips, bank statements), identity proof, address proof, property documents, and sometimes credit reports. The comprehensive nature of these requirements is due to the larger loan amounts and longer tenure associated with home loans, making it essential to establish creditworthiness and property ownership.
Gold loan or home loan: which provides higher loan amounts?
When deciding between a gold loan and a home loan for higher amounts, home loans generally provide significantly larger sums. Gold loans are limited by the value of the gold you pledge, usually up to 75% of its market value, making them ideal for smaller, short-term needs. In contrast, home loans can offer up to 80%-90% of the property’s value, depending on the lender, making them better suited for high-value purchases like buying a house or renovating one. If you're seeking substantial funding, a home loan typically offers a larger amount than a gold loan.
