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- Key Highlights
- Understanding Gold Loan With EMI Option
- Reasons to Choose Gold Loan With EMI Option
- Explaining Gold Loan Overdraft Facility
- Differences Between Gold Loan EMI Option and Gold Loan Overdraft Facility
- Gold Loan With EMI Option or Overdraft Facility: Which is Better?
- FAQS - FREQUENTLY ASKED QUESTIONS
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.
Key Highlights
- 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.
Understanding Gold Loan With EMI Option
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.
Reasons to Choose Gold Loan With EMI Option
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
Explaining Gold Loan Overdraft Facility
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.
Differences Between Gold Loan EMI Option and Gold Loan Overdraft Facility
Here are some key differences between the gold loan EMI option and the gold loan overdraft facility.
| Basis of Difference | EMI Option | Overdraft Facility |
| Type of credit | One time loan | Revolving line of credit |
| Interest calculation | Interest is charged on the entire loan amount | Interest is charged on the used credit limit |
| Repayment | Payment in uniform monthly instalments for a fixed period | The monthly instalments are based on the amount of credit limit used |
Also Read: Gold Loan VS Personal Loan: Know Before You Choose
Gold Loan With EMI Option or Overdraft Facility: Which is Better?
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.
FAQS - FREQUENTLY ASKED QUESTIONS
Which option is more flexible- a gold loan with an EMI option or overdraft facility?
An overdraft facility is more flexible compared to the EMI option. You can use any amount of credit that you want up to your credit limit.
Is it better to have a loan or an overdraft?
Both the gold loan EMI option and gold loan overdraft facility can be useful when used in the right situation. The gold loan EMI option is excellent for meeting sudden large expenses. A gold loan overdraft is more suitable for meeting operational expenses or monthly expenses.
Gold loan vs EMI overdraft- which option is suitable for medical emergencies?
Medical emergencies require a large payment in one go. Considering that, a gold loan with an EMI option would be more suitable.
Will my gold be secured during the repayment period of my gold loan?
Lenders keep your gold secure while you repay your loan. However, you must choose a trustworthy lender to ensure the security of your gold.
Will my gold loan affect my credit score negatively?
Your gold loan will affect your credit score negatively if you don’t pay your dues on time or if you keep your credit utilisation high.
What determines the credit limit of my overdraft?
The credit limit of your gold loan overdraft facility is based on the value of the gold pledged as security along with your credit score, income, etc.
What is the main difference between the gold loan EMI option and the gold loan overdraft facility?
The main difference between the gold loan EMI option and the gold loan overdraft facility is the type of credit. Under the gold loan EMI option, you get a lump sum loan amount and are required to pay it back in monthly instalments. An overdraft facility allows access to an ongoing line of credit.
What determines the amount of a gold loan with an EMI option and overdraft facility?
The same factors determine the amount of your gold loan with an EMI option or overdraft facility. The amount of gold loan or credit limit depends on the value of your gold, its purity, its weight, and your creditworthiness.
Which option would improve my credit score- A gold loan with an EMI option or overdraft facility?
Both the gold loan EMI option and gold loan overdraft facility can improve your credit score if you pay your loan dues on time and keep your credit utilisation low.
Should I get both the gold loan EMI option and the gold loan overdraft facility?
You can get both a gold loan EMI option and a gold loan overdraft facility if you need a lump sum loan amount as well as an ongoing line of credit. However, ensure that you can afford to repay multiple loans simultaneously.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
