Gold Loan EMI Option vs Overdraft Facility: What To Choose?

Gold has been a popular investment option in India for centuries. Most Indians buy gold or already possess gold that has been passed on in their family for generations. That's why gold loan is a popular choice of loan in India. Lenders have launched multiple types of gold loans to cater to the market demand. The most common types of gold loans includegold loan EMI option and gold loan overdraft facility.

• Gold loan EMI option and gold loan overdraft facility are two of the most popular gold loan types in India.
• Under a gold loan with an EMI (equated monthly instalments) option, you borrow a lump sum amount against your gold and repay it with interest through fixed monthly instalments. It is useful for situations that demand an upfront payment. It is also easier to budget because you know your monthly liability.
• A gold loan overdraft facility is a revolving line of credit. You can borrow money up to your fixed credit limit. The credit limit is based on the loan provided as security.
• While choosing between the EMI option vs overdraft facility, consider the nature of your monetary requirement.

Under a gold loan with an EMI option, you keep your gold as a security with a lender and borrow a lumpsum amount against it. The amount of the loan is based on the value of the gold mortgaged. In India, you can borrow a loan amount up to 75% of the value of your gold. Later, you have to pay back this loan with interest through uniform monthly instalments or EMIs. Until you repay the loan, your gold is kept securely with the lender.

Here are the top reasons why you must choose a gold loan with an EMI option.

• Lumpsum amount: Under this option, you get a fixed sum of money at once. This option is ideal for times when you need to pay for a large expense outright.
• Easier to Budget: A gold loan with an EMI option has to be repaid in fixed instalments. It is easier to create your monthly budget around this liability because you know how much money you need to pay every month.
• Quick Access to Funds: As gold loans are secured by your gold, lenders disburse your funds quickly.

However, this type of gold loan may not be suitable if you are looking for a revolving credit and not a lump sum amount. Also Read: Investing in Gold: 4 Things You Need to Know First

A gold loan overdraft facility provides a revolving line of credit against your gold, similar to credit cards. The lenders keep your gold as a security and provide a line of credit against it. You can withdraw as much money as you want within your credit limit. The credit limit is based on the value of the gold kept as security. You only pay interest on the amount of credit that you use.

Top Reasons to Choose a Gold Loan Overdraft Facility

A gold loan overdraft facility provides several benefits to the borrowers. Some of them are mentioned here.

• Revolving credit: A gold loan overdraft facility allows you to get credit against your gold as and when required. You can use it as an ongoing credit line like credit cards.
• Suitable for operational expenses: The gold loan overdraft facility is suitable for you if you are looking for a line of credit to meet your operational expenses.
• Pay Interest Only on the Used Limit: You don’t need to pay interest on the entire credit limit. Interest is charged only on the credit you use.

Here are some key differences between the gold loan EMI option and the gold loan overdraft facility.

Also Read: Gold Loan VS Personal Loan: Know Before You Choose

Gold loan EMI option and gold loan overdraft facility are attractive options in their respective ways. Consider the nature of your financial requirements to decide which option is the most suitable for you. For example, if you need a loan for sudden large expenses like medical treatment or car repairs, choose the gold loan EMI option. However, if you don’t have a large expense in horizon, but just want a revolving credit option, choose an overdraft facility.