Gold Loan

What to Choose: Gold Loan With EMI or Overdraft Protection?


A secure personal loan, known as a gold loan, is intended to assist borrowers who require urgent access to funds. When your credit score is low, a gold loan can help you avoid financial problems. Among the many benefits of gold loans are their simple paperwork, basic eligibility, and quick disbursal. These loans come in various forms to suit your needs. Now the question arises, which option is best for choosing a gold loan? Here is a guide to help you decide between an overdraft or an EMI facility for repaying a gold loan.

What is a gold loan?

The demand for gold has grown recently and will continue to grow. People value it as a store of value wherein the money invested can grow in future. They can also use the gold to raise money for various needs.

When people want a little extra money to pay for events or a crisis, or tasks like education, home repairs, etc, a gold loan is useful. Herein you pledge your gold with a lender who will offer you option 80% of the value of the gold as a loan. Gold loan interest rate will be given by the lender at the time of disbursal. You will have the option to repay the loan in the form of EMI or use it as an overdraft.

What Is the Facility of EMI On A Gold Loan?

When it comes to the EMI option, it works more like a normal loan. This is usually a system where you get a gold loan and then repay the loan amount in EMIs over the loan tenure The month after loan disbursal will mark the start of repayments. In general, lenders offer loans to their customers around 80% of the value of their gold. Under this option, you receive a gold loan for a specified tenure and need to repay it in the form of EMIs as per the rules of the lender. the EMI will depend on the gold loan interest rate, loan amount, and tenure.

What Is the Option of Gold Loan With an Overdraft?

A gold loan repayment using an overdraft works like a credit card payment. You are permitted to use credit cards up to their issued credit limit. The same is true for a loan facility with an overdraft. You are not required to pay interest on the total amount but only on the amount used.

However, it should be noted that the interest rates for this facility are higher than EMI option. Unlike a gold loan with an EMI, You only need to serve the interest during the loan tenure. You can also close the overdraft anytime by paying the balance amount.

Difference Between The Two Options

It can be challenging to choose between a gold loan with an overdraft and an EMI alternative. Both have the potential to be beneficial and harmful at the same time. Let us find out how:

  • Choosing a gold loan in an overdraft works as a sort of credit card. It ensures you can get access to draw any amount up to the total loan amount as and when you need it. For those users who are not sure of the loan amount they may need, this flexibility can be quite helpful. As opposed to this, a loan facility on EMI makes the borrower receive the loan money all at once. You may choose to spend it all at once or in instalments. There is a lack of flexibility here and you must pay interest on the entire loan amount.
  • If a customer uses the overdraft facility, they can lower the interest cost. When they withdraw smaller amounts than the total amount they only need to pay interest only on the amount used. But in the case of EMI, your EMI includes the interest for the entire loan amount. So even if the money is in your bank account, you will still have to pay the interest on it.
  • People can choose the repayment duration and select an EMI amount that they can afford under the EMI option. This eases the burden of repayment, reducing financial stress. An excellent way of keeping track of all the expenses. In contrast, if you close a gold loan before the loan tenure, you might have to pay foreclosure fees. Compared to the EMI option, people who take up a gold loan with an overdraft are unsure of how much money they will spend each month. Therefore, the rate of interest that will be levied and the loan tenure is also unclear. 

What to finally choose?

If you are in a situation where you need to access funds quickly, then you can get a gold loan. This is a good option when you do not want to borrow from friends and family. But how to choose a gold loan and repayment option? Depending on your needs and ease, you can decide between an EMI loan and an overdraft facility. However, since overdrafts of gold loans only charge interest on the amount used and permit borrowing up to the sanctioned amount, they are favourable as compared to EMIs

Summing up

Depending on your needs, you can choose between a gold loan with EMI or an overdraft facility. They both have their pros and cons, hence you need to choose wisely. If you want to learn more about gold loans, visit Piramal Finance. They have many blogs and articles on this topic to help you make a decision. They also offer various personal loans to cater to your urgent needs for money.