One does not feel the full force of inflation until all your savings deplete, funds empty out and your income merely helps you stay afloat. To make matters worse, a new medical emergency has got your finances in a chokehold. Sometimes it becomes vital to get some monetary support to get through such challenging times. This help can be found in the form of loans. It is difficult to assess and decide upon the credit option you should opt for amongst the innumerable credit options available, be it from banks or NBFCs.
The best way to decide is by analysing and assessing the pros and cons of all the options available to you. We usually turn to our easily liquefiable assets like gold and FDs when any emergency strikes. You can get credit by keeping these as collateral rather than selling away your yellow metal or breaking open your FD. Let’s understand these options in greater detail.
We know how important that family heirloom is. Selling it is not an option, but you can get a loan against the precious metal! You can get a short-term loan from any financial institution by keeping your gold as collateral. If the purity of your gold is between 18 and 24 karats, you can get a loan against it for a tenor of six to twelve months.
Gold loans are flexible and one of the most sought-after forms of credit available secured loans. They provide multiple repayment options, right from monthly EMIs to bullet payments. One can select a repayment process that is more comfortable for them. Even though you can get this facility at a local jewellery store, it is advisable to get your gold loans from registered banks and NBFCs. This ensures the security of your gold and leaves little to no scope for getting cheated in the process. A fair valuation and good loan-to-value ratio help you get a better loan. Hence comparing the rates and offers of multiple financial institutions before getting a loan is particularly important. If this seems like a feasible option to you then do read 5 Things to Consider Before Taking a Gold Loan before you proceed.
You may fear giving up your precious jewellery in case of failure in repayment. After all, precious ornaments do not have just a hefty price tag, but also a lot of emotion attached to it. In this case you can utilise your fixed deposit. Instead of withdrawing your FD prematurely and paying the penalty, consider getting an overdraft against your FD.
Under this, you can get money up to a prefixed amount against your deposit to settle unexpected expenses while continuing to save up on your FD. It is beneficial for those who have a low credit score or those who do not meet the eligibility criteria to get a loan. As your FD is held at collateral, you can get this facility quite easily. Even the interest rate on these credits is lower than most other credit options. The interest rates are usually 1%-2% higher than the FD rate. Deposit rates offered on an FD are about 5% to 6% on average. So, your repayment interest will be usually around 6% to 7%. Furthermore, as this is an overdraft facility, the interest will be charged only on the amount used not on the entire sanctioned amount. The tenor for the loan will be equal to that of the FD. If your deposit held as collateral matures in 5 years, then your overdraft facility will also end in 5 years.
The credit you select depends on your requirements and preferences. A gold loan is beneficial to those looking to get a loan on a large scale. This is because the value of this precious metal keeps multiplying considerably over time and when mortgaged can get you a huge lump sum on credit. Generally, you can get a loan-to-value ratio of 75% to 90% on your gold. According to this, on gold valued at ₹10 Lakhs, you can get a loan of about ₹7.5 Lakhs to ₹9 Lakhs. The speedy processing and easy availability make it a convenient option for borrowers. If utilised for buying residential property, business expansion and so on, you can also get a tax exemption on your EMIs. However, you might have to pay additional processing and valuation fees when taking a gold loan.
On the other hand, if your requirement is not as huge and if low interest rates attract you, opt for an FD overdraft. You can get up to 90% of your deposit amount as an overdraft. The effortless application process, zero penalties and processing fee, make it a go-to choice when looking for additional credit. This option also allows you to keep growing your savings rather than breaking open your FD. The facility can be renewed or closed at any time.
Whether opting for a gold loan or an overdraft on a fixed deposit, make sure you carefully assess your assets and finances before taking the decision. Both have their own pros and cons, and it is up to you to decide, which of the two fits into your financial requirements better. Don’t be afraid of credit, simply opt for the right plan and face all emergencies head-on! Visit Bajaj Markets website or app and find a wide array of credit providers to choose from. Get the loan you need from the comforts of your home with our completely digitised application process. Need we say more?
Frequently Asked Questions
Which is the better finance option: gold loan or FD loan?
It depends on the individual’s needs. A gold loan helps you get quicker access to cash and lower interest than a personal loan, but requires gold as collateral. Meanwhile, an overdraft against FD requires you to pay interest only on the utilised amount, making it cost-effective for short-term financial needs. It does not require you to break your FD or submit additional collaterals.
When to choose a gold loan?
You can choose a gold loan when you need quick funds at low interest rates and flexibility in repayment terms. It is suitable for meeting immediate financial needs without liquidating other assets.
When to choose a loan against FD?
You can go for an overdraft against FD when you need flexibility in accessing funds as per your requirements, especially for short-term requirements. It's a convenient option when you want to preserve your fixed deposit and avoid breaking it or providing additional collateral.
