We are all aware of the maxim stated by the different economists who over the years have studied the intricate details associated with the functioning of the demand scenario in the market and have successfully found out that the demand for particular goods and services are unlimited but the resources that can be used to satiate the demand for those goods and services are limited. Thus the banking institutions realized that it was difficult to service the demand of the goods and services of the consumers and the borrowers with just the resources that they possessed with them. It required some more innovation and more execution of necessary resource utilization and the implementation of the principles that are to occupy a very important place in the functioning of the economic environment of the country. Thus they introduced the concept of gold loans and home loans- two of the primary lending instruments in the country which became extremely popular in no time and emerged as two of the most instrumental and cerebral financial operational understanding elements in the economy. A comparative analysis between the two forms of loans regarding the following criteria would be extremely helpful in identifying the functioning of both these forms of loans-
Definition and Conceptual Understanding- The first criterion upon which a basic distinction and difference can be drawn between the two aforementioned forms of loans is the criterion of definition and conceptual understanding. These are two related facets as only through a clear understanding of the definition only we can conceptually understand how a loan facility is different from the other and what are the impacts that each of them has on the functioning of the other. For example- When we define Gold Loan we state that it is that loan facility where the borrower deposits a certain percentage of the gold as security deposits. The banking institutions have instruments that can be used to value the amount of gold that is deposited by the borrower. Upon the correct evaluation of the gold, the loan amount would be identified and it will be provided to the borrower by transferring the amount to the loan account of the borrower which will thus help him in clearing out all his specific demands and requirements. Home Loans on the other hand can only be used for the specific purpose of purchasing a house. The amount which is withdrawn as a loan can be used to purchase a residential property which can either be used to reside in or can also be used for leasing purposes. Thus to satiate the demand of the borrowers in the monetary sector, banking institutions have introduced the system of two primary forms of loans that assume a huge amount of importance in any reliable economic activity taking place in the economy- Gold Loans and Home Loans.
Prevailing Interest Rates- Another area of difference existing between the functioning of the gold loans and home loans, interest rates is another criterion upon which the differences between the functioning of gold and home loans can be established. The interest rates for gold loans are low since a high amount of collateral securities should be deposited before availing the loan facilities. In the case of home loans, however, since the nature of the home loans are unsecured and no collateral is required to be deposited to the banking institution, to guarantee the repayment of the loan within time, the interest rate for home loans is high. Syndicate Bank Gold Loan Rate ranges from 8-9%.
Conclusion
Thus the basic differences between the two mentioned forms of loans also tell us that both of them are extremely significant to the development of the economic activity.
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