Gold loan or Festive loan?

Firstly, while opting for a loan, offers and discounts should not be the first priority of an individual. It is important to remember that no loan comes without any interest charged on it. As RBI had stated that “every loan comes with an interest rate attached based on the customer’s risk profile”. Thus a borrower must take up the responsibility to check other important aspects like loan tenure and repayment facilities provided under the scheme of the loan. Moreover, it has been observed that a festive loan is more suited for long term tenures, like for buying a home or car, whereas short term festive loans could prove to be a disaster.

We will now take a look at the facts and logic behind the attractive offers applied by these festive loans:

• No cost EMI- As we have heard about the concept of ‘No cost EMI” and ‘zero interest loans’ when it comes to the advertisements for festive loans. But this is not the case, the interest is added in disguise in various ways. Generally, they mask the interest amount in the form of an excessive processing fee that is taxed on the borrower. In other cases, customers are asked to pay for a joining fee which eventually sums up the offer of ‘No cost EMI”, as they are making the borrowers pay it in disguise.

• Cash-back offers- Another way to attract borrowers in need of money is by luring them with cashback offers. To avail of this facility of cashback offers one has fulfilled certain conditions. Even after doing it, the borrower will not be able to avail the amount in his or her bank, but they are supposed to provide an e-wallet or some kind of a voucher. These vouchers and e-wallet can only be used for the purpose of shopping during festivals.

Further, let’s take a look at the facilities and features offered in a gold loan scheme which are better suited as a loan option if compared with any festive loan:

• Gold loans come with a very low rate of interest as it ranges between 10% to 20% amongst the reputed banks and NBFCs. Even though festive loans do not show the charges of interest but they club the amount in other charges like processing fees and tax included.
• Minimal paperwork and documentation are required while getting a gold loan approved, as it is a secured loan. One can get this loan sanctioned only by using his or her KYC documents for proving identity and other basic details. Whereas, in the case of festive loans one has to spend a lot of time doing paper works and other documentation, as CBIL score is also considered in this case.
• Gold loans come with various flexible repayment options which are not the case with festive loans. There are monthly EMI installments, bullet payments, where both principal amount and interest rate can be deposited together, there by foreclosing the tenure. There is also the option of paying monthly interest and depositing the principal amount while maturity.
• Further, the loan to value (LTV) ratio has been increased by RBI from 75% to 90% which has made gold loans more approachable.
• Moreover, gold that is to be pledged during crediting a gold loan is kept under security with utmost care and prevention. Thus the borrower does not need to worry about his or her gold assets and safety. Manappuram gold loan offers 100% security guarantee with a good interest percentage.

It is to be recommended to only avail a festive loan for long term financial purposes and gold loans for short term purposes. This way both can be beneficial, only it is utilized in a proper way.

Also Read:- CIBIL Score And Gold Loans