There are two kinds of secured loans that people normally opt for when they need money. A home loan is utilised when people need to cover a large amount of expenses to buy a house, or construct a new one. The other option is gold loan, which allows individuals to pledge their gold jewellery or coins as collateral. Both loans have their own set of advantages and limitations. But, one of them might turn out to be more suitable than the other in certain cases.

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It’s important to understand the financial intricacies involved in both kinds of loans and choose the one that best suits your requirement.

Gold loan vs home loan: What are the differences?

Collateral: In a gold loan, ornaments or articles made of the precious metal will be taken as collateral. The jewellery or coins must be made with 18 to 24 carat gold. A borrower can get up to 80 per cent of the collateral’s value as loan amount. In case of a home loan, the property that is purchased will be the collateral. Most lenders offer the money against the residential property itself and the amount can be up to 90 per cent of the house.

Tenure: Home loans have a longer tenure as compared to gold loans. A loan against gold ornaments can have a repayment schedule of up to 36 months. On the other hand, a home loan generally comes with a repayment period of 15 to 20 years.

Purpose of loan: A gold loan can be used for a variety of purposes including educational expenses, starting a new business and more. On the other hand, a home loan can be used only for buying, renovating or constructing a residential property.

Eligibility criteria: Since a home loan’s eligibility criteria are based on the value of a property and financial status of the borrower, it may not be so easy to get approval for the same for many borrowers. A gold loan is easily approved comparatively as the value of the gold is taken into consideration.

Interest rate: The interest rate on home loans is lower since the amount is more and the tenure is longer. Even for home loans the borrowers can opt for floating interest rates.

Repayment options: Equated monthly instalments (EMIs) are the only option to repay a home loan. A gold loan offers other choices such as bullet repayment (lump sum payment) and overdraft facility.

Gold loan or home loan: Which is better?

If you want to avail financial help for buying a home, then the obvious choice is a home loan. If you need money to take care of any other monetary needs, a gold loan may be a better option. If the required amount is less or you want to have a flexible repayment schedule, pledging your gold ornaments as collateral will be a better idea. It all depends on the needs of the borrower, their financial status and their ability to repay the loan.