In India, gold is not only considered jewelery but also a reliable support in difficult times. This is the reason that when needed, people often take a loan from the bank against their gold, but very few people know that apart from gold loan, there is another option, gold overdraft service, which can prove to be more flexible and convenient in many cases.
Gold overdraft is a facility in which you get permission to borrow money from the bank up to a fixed limit by pledging your gold. The difference is that in this you do not have to take the entire money at once. The bank opens an overdraft account for you, from which you can withdraw money anytime as per your need.
How does this system work?
Suppose the bank gave you an overdraft limit of Rs 2 lakh based on the value of your gold. Now if you need only Rs 40,000 immediately, you can withdraw that much. Later, if needed, you can withdraw money again, until your limit is reached. The most important thing is that you will have to pay interest only on the amount that you have used.
Why is it more beneficial?
The biggest strength of gold overdraft is its flexibility. In this, you borrow money as per your need and pay interest accordingly. This prevents unnecessary interest burden. Also, if your cash flow is irregular or you require small amounts frequently, then this facility can be very helpful. Even in emergencies, money is available immediately, so that you do not need to take loan again and again.
How is it different from gold loan?
In a traditional gold loan, the bank gives you the entire sanctioned amount at one go. After this you have to pay interest on the entire amount, whether you have used the money or not. However, this is not the case with gold overdraft. Here, interest is charged only on the amount of money you borrow. For this reason, it is a better option for those who need small amounts from time to time rather than a large lump sum.
Right choice for whom?
If you frequently need money to meet sudden expenses or want to save interest by keeping your expenses under control, then gold overdraft can be a wise option. At the same time, if you need a large amount at one go and want to use it for a long time, then gold loan may be more suitable. After all, the purpose of both options is the same. Using the value of your gold when you need it. The only difference is which method suits your needs and financial situation more.
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