big funds

Should you take LAP or Gold Loan when in need of big funds?

As gold loans and loans against property have a lot of common features like the freedom to use loan funds, secured nature and big-ticket amount (depending on security value), people requiring a high amount of money are often confused about which option to pick.

So here is a comparison of HDFC Loan Against Property and SBI Loan Against Property vs gold loan to help you choose.

Time Needed for Disbursal

When compared to other types of loans, the disbursement time for gold loans is among the shortest. After the application for the loan has been submitted, the funds are often transferred to the borrower within a few hours. The method of review is predominately predicated on the quality of the collateral, with the evaluation of the borrower’s credit profile receiving nearly no or almost no attention at all. In contrast, the disbursement process for SBI Loan Against Property typically takes between two and three weeks. 

This is because lenders are required to verify all of the documents related to your property before disbursing the loan, as well as conduct a technical study to confirm that you own your property and its current market value. Therefore, individuals who need access to funds immediately would benefit more from gold loans than they would from HDFC Loan Against Property in terms of the amount of time it takes to process the loan.

Tenure of Repayment

When it comes to loans secured by gold, the payback terms are often on the more expedient side, with the majority of lenders offering terms of up to one year to three years and only a select few lenders offering terms of up to four or five years. 

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When it comes to SBI Loan Against Property, repayment terms can go up to 15 years, while a \few creditors provide repayment terms that go up to 20 years. LAPs often have far longer payback tenures than gold loans do, making them a potentially ideal choice for borrowers who are interested in maintaining lower EMIs over the course of a lengthier loan repayment tenure. However, given that longer repayment tenures also result in higher interest costs, opting for a gold loan may be the more cost-effective choice for borrowers who are certain they will be able to repay their loan within a shorter period of time after taking into account their capacity to make repayments.

Amount of the Loan

When it comes to loans secured against gold, the amount of the loan is mostly determined by the appraisal of the gold that is used as collateral and the loan-to-value (LTV) ratio that is established by the lender. RBI places a maximum limit of 75% on gold loan LTV ratios. This limit is subject to variation. The amount of the loan might range anywhere from one thousand rupees to one and a half million rupees depending on the lender. Whereas, when it comes to HDFC Loan Against Property, lenders would typically grant up to fifty to seventy percent of the property’s market value based on the applicant’s ability to repay the loan, their income, and the property that will be mortgaged, and other factors. 

When taking SBI Loan Against Property, keep in mind that while determining the fair market value of the property, lenders take into consideration a variety of elements, including its location and age, as well as the infrastructure that is located in its immediate vicinity, among other things.

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Applicable rates of interest

Gold loan interest rates can range from 7.0 percent per annum all the way up to 29 percent per annum, based on the lender’s risk assessment of the loan application, the loan tenure, the loan amount, and the repayment option that the borrower chooses. There are some lenders who have a pattern of charging higher interest rates for larger loan amounts and greater lengths of time till payback. 

On the other hand, the interest rates for SBI Loan Against Property can range anywhere from 8-9% percent to 13-14% per annum, depending on the lender, the lender’s risk assessment of your credit profile, and the type of property that is pledged as collateral. When compared to the interest rates paid for commercial properties or homes that are not self-occupied, the interest rates that some lenders give for residential property that is occupied by the borrower themselves tend to be cheaper. ]

EMI payment flexibility

Gold loans typically come with a more flexible payback schedule than other types of loans. In addition to the customary method of repayment known as EMI, many creditors permit borrowers to only repay the interest amount associated with their loan on a monthly basis, with the remaining principal amount being due upon the loan’s maturity date. The principal amount is typically repaid at the conclusion of the loan term. However, some lenders give borrowers the option of paying off their interest component in full at the time the loan is approved. When the loan term comes to a conclusion, several gold loan choices give borrowers the freedom to return not only the principal but also the interest component of the loan. 

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When it comes to HDFC Loan Against Property, lenders typically permit them to be returned in the form of EMIs; nevertheless, certain lenders also have a tendency to offer LAP in the form of an overdraft facility. Due to the availability of different repayment choices that are not based on EMI, individuals who are dealing with short-term cash flow mismatches and constraints may discover that gold loans are more acceptable for their needs.

Processing fees

For HDFC Loan Against Property and other lenders, processing costs of up to one to two percent of the total loan amount can be imposed. The processing fees for gold loans typically range from 0.5 percent to 2 percent of the loan amount, with a small number of lenders charging flat fees beginning at as little as Rs 10 for these loans. Applicants for loans, therefore, need to be certain that they take into account the processing fees when calculating the actual cost of obtaining these large ticket loans. This is because even a slight variation in the processing fees can have a significant effect on the ultimate cost of the loan.

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