A lower credit score often makes it harder for individuals to get loans, affecting their chances in the financial world. However, life's unpredictable twists and turns can bring forth unforeseen expenses that demand immediate attention. This is where secured loans, such as an NBFC gold loan or OD against FD, can be convenient instruments. It is common for people to have a tough time deciding between the two, so stay with us as we discuss the options in detail.
Key Highlights
- Gold loans and FD overdrafts are popular forms of obtaining secured loans in India.
- Gold loans are eligible for tax deductions and offer lower interest than FD overdrafts.
- Unlike gold loans with quicker disbursal, FD overdrafts bear considerable processing time.
- Analyse individual abilities and consider factors before applying for either of these.
To help decide which is more practical between the two, let's dive deep into FD overdrafts and gold loans. Further, we will also understand how to check for the best interest rates at leading institutions like Shriram Finance.
What are FD Overdraft and Gold Loans?
Banks and Non-Banking Financial Corporations in India offer loans at competitive interest rates to applicants requiring financial assistance. But often, applicants cannot apply for unsecured loans due to low credit scores. These individuals often apply for FD overdrafts or gold loans, both requiring some form of security.
FD Overdraft
An FD overdraft facility is a type of loan that borrowers can avail of against their FD deposit as collateral. Some financial institutions and NBFCs allow a 90% overdraft facility against your existing FD. An individual must fulfil a minimum lock-in period to be eligible for an overdraft. Typically, the interest on the OD is about 1% to 2% higher than the interest on the FD. This implies that if your FD grows at 7% a year, the OD against FD will earn 8-9% a year.
Moreover, it is also essential to know that FD rates fluctuate with time. Staying updated with the same can help you better understand your overdraft limit.
Gold Loan
A gold loan is a type of loan one can avail of by pledging their gold articles. In this scenario, a lender allows an applicant to borrow money in exchange for keeping their gold as a security. The borrower must return the money with interest within a specified duration, failing which the lender can auction the collateral. Besides, on complete repayment of your EMIs, you also regain custody of your gold after meeting your financial needs.
You can also learn more about gold loans here.
Gold Loan vs Overdraft against FD: A Comparison
Timely EMI repayments of both these instruments can help you improve your credit score. Subsequently, deciding between gold loan vs overdraft against FD must be done considering all aspects.
Borrowing Limit
- FD overdrafts allow borrowing up to 90% of the fixed deposit.
- Gold loans depend on the value of the gold, typically providing around 75% of its worth as a loan amount.
Documentation Process
- Gold loans have simpler processing and documentation requirements.
- OD against FD can be time-consuming and require more documentation.
Tax Benefits
- Gold loans offer potential tax benefits, allowing deductions of up to ₹ 1.5 lakhs under Section 80C for loans used to improve, purchase, or construct residential properties.
- There are no exemptions applicable for overdrafts against FDs.
Tenure
- The tenure of a gold loan is mutually agreed upon and based on repayment capacity.
- Overdraft FD has a fixed tenure and repayment period.
For a quicker comparison, let’s look at a table highlighting features of a gold loan and FD overdraft.
| Feature | Gold Loan | OD against Fd |
| Tax exemptions | Eligible for exemption under Section 80 C Tax deduction of up to Rs. 2 lakhs can be claimed on interest paid in a year under Section 24 of the IT Act, 1961 for construction or purchase of residential property. | Not eligible for any exemption under Section 80C |
| Credit Limit | Loan amount can be anywhere around 75% of gold value | Loan amount is generally up to 90% of FD amount. |
| Loan Processing | Less documentation, smoother processing | Extensive documentation |
| Interest Rate | Generally lower interest than FD overdraft | Interest rate is 1% or 2% above the FD interest |
| Tenure | Flexible tenure as per repayment ability | Fixed tenure and no overdraft facility on maturing of FD |
Table of comparison
Having explored their significant differences, let's now answer another commonly asked question.
NBFC or Banks: Where Should One Apply for a Gold Loan?
The disbursement of gold loans has seen a significant rise since September 2020, reaching a total of ₹46,791 crores. With both banks and NBFCs being major players in this segment, selecting between the two can be challenging.
Further, both are credible bodies regulated by the Reserve Bank of India. Although both options have pros and cons, NBFC gold loans may be a better option for certain borrowers. NBFCs, such as Shriram Finance, offer several benefits, such as:
- Quicker Processing: While applying for a loan at banks can be tiresome owing to elaborate processes, availing of a gold loan at NBFCs is a much smoother experience.
- Minimal documentation: A valid ID and Address proof, along with the gold object, is all you need to obtain an NBFC gold loan. Banks, contrarily, often demand extensive documentation.
- Lower processing fee: NBFCs usually charge a lower processing fee in comparison to banking organisations.
- Flexibility in amount: While banks only offer large amounts, with NBFCs, you can avail of amounts as small as INR 1500.
Therefore, while financial institutions are also major mediums for taking a gold loan, NBFCs continue to maintain an advantage over them. And if still in doubt, it is advisable to check for testimonials from previous customers to make a wise judgement.
Conclusion
Taking financial decisions is a significant step towards achieving personal or professional ambitions. With a complete understanding of the benefits of NBFC gold loans over overdraft FDs, it's time to take the next step towards better financial management.
But, no matter the circumstances, one must always analyse their abilities before applying for a gold loan. Users can also calculate their gold loan EMI using this calculator before starting their financial journey.
So, don't let financial constraints be an element of worry again. Apply for a gold loan from Shriram Finance now.
Frequently Asked Questions
1. Is It Good to Take an Overdraft Against FD?
Taking an overdraft against FD is an effective way to manage financial constraints. However, comparing them with options like a gold loan is advisable before settling on one.
2. What is the Difference between an Overdraft and a Loan Against FD?
A loan against FD is an amount that one can borrow, keeping their FD as collateral. An overdraft, however, is a facility provided to customers to withdraw more funds than available in their FD balance to meet expenses.
3. What is the Benefit of an Overdraft Loan?
An overdraft loan allows customers access to extra funds against their FD to meet unplanned or unexpected expenses. A gold loan, on the other hand, allows quick and convenient financing by allowing customers to pledge their gold assets as collateral.
4. Can I Avail of Tax Deductions on Both Gold Loan and FD Overdrafts?
No, FDs are not eligible for exemptions. Only gold loans for buying or purchasing residential property or home improvements are eligible for a tax exemption under Section 80C of the IT Act.
5. Can I Apply for a Gold Loan Online?
Yes, you can get a gold loan online at the best interest rates at Shriram Finance.
