Which Option Is Prudent – A gold Loan or a Loan Against Credit Card?

The decision to select what loan matches your requirement better can be a little overwhelming. Here, let’s look at credit card loans vs. gold loans to understand which option you must select.

Difference between credit card loan and gold loan – 

Following are the distinctions between a gold loan and a loan against credit card depending on some crucial parameters – 

Security or collateral – 

A gold loan is a secured credit option while a loan against credit card is an unsecured credit option. A gold loan like HDFC gold loan, SBI gold loan, PNB gold loan, etc. can be taken up by pledging your gold securities or collateral. The gold loan’s rate of interest is way lower than a loan against credit card. This is owing to the reason that for a lender, a gold loan endows security and collateral and hence is way safer than a loan against credit card. So, if you are thinking of availing an HDFC gold loan, then go for it because the HDFC gold loan interest rate available to you would be much lesser than the interest rate on a loan against credit card option.

Credit history – 

Credit history is a crucial parameter that lenders tend to review while processing your loan against credit card. However, as a gold loan is secured in nature, there is zero requirements for a good score. You require a score of at least 750 and above for a loan against credit card with an attractive rate of interest while for a loan against gold, the score does not matter much.

Loan approval and disbursal process of funds – 

A gold loan can be taken up in a few minutes as there’s minimal documentation and checks on your background. Loan against credit card is even quick but may take time to check your application and documents submitted.

Loan proceeds – 

A loan against credit card can be taken up on the credit card limit assigned to you. Moreover, exhausting your overall credit card limit can reduce your score. With a loan against gold, you can get a loan of 75 per cent of the gold article. An additional credit option on top of this can even be availed in the case of any other financial requirement.

Flexible repayment – 

Repayment of gold loan is flexible. You can pay through flexible instalments wherein you can just repay the interest constituent during the loan tenure and repay the principal towards the end of your repayment tenure. You can even select to repay the interest constituent along with the principal component towards the end of the loan repayment tenure.

Also Check: HDFC Gold Loan Interest Rate

Repayment tenure – 

A gold loan is generally provided for a span of six months while a loan against credit card can be provided for twelve months.

Documentation – 

For a loan against credit card, you require a strong score, proof of income, and a sound repayment history. Note that for a gold loan, besides submitting a gold article as security, you need to submit the basic know your customer form too.

What are the key highlights of a gold loan?

Secured credit option – 

A loan against gold requires a gold article as security to get loan approval. A score is irrelevant as anybody with a gold article can place a gold loan application.

Rate of interest – 

The rate of interest on gold loans begins from 7.35 per cent and goes as high as 29 per cent per annum.

Loan proceeds – 

Gold loan is available to you between Rs 1500 and Rs 5 crore.

Repayment tenure – 

The repayment tenure is generally flexible that range anywhere between seven days and six months.

Minimal documentation – 

Gold loans require a minimum document submission and generally, a good score is not required too. A gold loan gets approved depending on the gold value pledged as security.

Loan to value (LTV) ratio – 

The loan-to-value or LTV ratio for a gold loan is determined by the Reserve Bank of India at 75 per cent. What it means is that you can avail a loan worth 75 per cent of the value of the gold pledged.

Usability – 

You can use the gold loan for various purposes. You as a lender do not have any restrictions on the gold loan’s usage. This might include emergency medical expenses, vacation expenses or educational requirements.

Processing time – 

Minimal processing time is needed for a gold loan as there’s a minimal requirement for documentation.

Fee types –

The fees linked with a gold loan are administrative fees, processing charges, penalty charges for non-payment of the interest constituent, late payment fees, etc.

Rebates – 

Few lenders may want to provide a rebate of anywhere between 1 – 2 per cent depending on your financial discipline. You as a borrower with a strong repayment history may avail the benefit of a rebate.

Key highlights for loan against credit card – 

• Pre-approved loan –

Most loan against credit card is pre-approved depending on your past repayment history linked with credit option repayments.

• Payment on EMI is available – 

A loan against credit card can be repaid in the form of EMI, which makes it simpler for you as a borrower to plan out your repayments.

• Balance transfer on the EMI available –

A few banks even provide loans to cover other banks’ credit card costs. You can simply transfer your balance at a lower rate of interest if you are facing any difficulty in repaying your initial loan amount.

• Credit limit – 

Many financial institutions permit you to avail a loan of up to the credit limit allowed. However, a few may agree to go more than the allowed credit limit also.

Ending note – 

A gold loan is looked upon as a better choice than a loan against credit card owing to the availability of lower interest rates. Also, they offer flexible tenures, which makes it simpler for you as a borrower to plan out your finances. Gold loans avoid the requirement of a strong score for the approval of a loan. However, such loans need you to pledge a gold article in the form of a security or collateral. The drawback of a gold loan is you may consider it tough to recover your security if you fail at making the loan repayment. So, on every ground, a gold loan appears as a better choice than a loan against a credit card option.