A loan is the best means to raise funds in an emergency. Most of the banks and NBFCs offer a variety of loans to the customers. You can make a selection of the loan type based on the purpose, rate of interest, payback amount and mode, and the duration of the loan. Gold loan and loan on fixed deposit are the two types which attract the borrowers.
Gold Loan
Gold loans are one of the quickest and most available types of loans to get instant funds. You keep your gold as a security or collateral with the lender for a specific time to get the loan amount. Like any other loan, you have to pay monthly installments as payback.
Loan on Fixed Deposit
Your fixed deposit can work as a security or collateral if you wish to avail a mortgage on this. Most lenders give this facility.
Gold Loan or Loan on FD?
Gold loan and loan on FD are the two popular choices which have their pros and cons. Let us evaluate the merits and demerits of both before making our decision.
| Sr. No | Feature | Gold Loan | Loan on FD |
| 1 | Ease of Process | The process to avail a gold loan is simple and easy with minimum documentation. | The process to avail a loan on FD is also simple and easy. You have to submit your FD receipt to avail loan. |
| 2 | Flexible Tenure | The tenure of a gold loan has the flexibility of repaying in a few months up to 4 years | The tenure of a loan on FD has the flexibility of repaying in few months up to the maturity of the FD |
| 3 | Time in getting approval | The gold loan has instant approval and disbursement process | The approval and disbursement may take a couple of days or more |
| 4 | Rate of interest | The interest rate differ from lender to lender but is generally lower than other types of loans. | The interest for a loan on FD ranges from 12% to 12.5% which is higher than the gold loan interest rate. |
| 5 | Security of the assets /funds | Your gold is safe with the lender until you repay the loan amount regularly. On failure of the payment for three consecutive months, the gold is seized and auctioned. | The FD amount is safe even if you fail to pay the timely installments. The lender will deduct this amount from your total amount due at the time of maturity. |
| 6 | Penalty on Pre-payment of the loan | No penalty | No penalty |
| 7 | Maximum loan amount | 70% of the total value of the gold, maximum Rs. 20,00,000/- | 90% of the total value of the deposit in the FD account |
As it is evident, a gold loan has the advantage of instant approval and a large loan amount available to the borrower. In contrast, investment in FD has the benefit of the safety of funds. It is the discretion of the borrower to analyse his needs and choose either the gold loan or the loan on FD.
