Why Taking a Gold Loan is Smarter Than Breaking Your Fixed Deposit in an Emergency?

The World Gold Council highlights that India is the world’s largest consumer and holder of this valuable asset. It has always been an investment option and also considered as a smart financial move than breaking your Fixed Deposit (FD).

When facing an emergency, questions may arise whether to break your fixed deposits and let go of the potential savings from the FD interest rate, or use gold as a security and take up a loan.

While both options provide cash, a Gold Loan usually protects the long-term returns and compounding on your FD, making it the wiser decision in many real-life situations. Let’s explore this in greater detail.

What Happens When You Break a Fixed Deposit Early?

Fixed deposits are investments that reward long-term savings. Breaking them may lead to several consequences as mentioned below:

Penalty Charges

Some banks and NBFCs impose a penalty for early withdrawal of FDs. These penalties vary across banks and usually range between 0.5% to 2%. They are deducted directly from the applicable interest rate for the tenure completed.

For example, if the fixed deposit interest rate for your completed tenure is 6% and the lending institution charges a 1% penalty, you will then earn 5% instead of 6%. Therefore, it’s important to calculate the total revenue loss before breaking the FD.

Impact on Financial Goals

Breaking your Fixed Deposits may derail your future goals and as a result, you may be forced to choose more expensive credit choices in the future, which can impose a further burden on your budget.

Why is a Gold Loan Smarter Choice?

Instead of keeping your gold jewellery or coins idle, you can use them more efficiently by keeping them as collateral and getting a Gold Loan. This will unlock the value of your gold without selling it. You will receive funds immediately, usually within a short period, without disturbing your savings.

Let’s understand what the features of a Gold Loan differ from other saving instruments like an FD.

1. Secured Loan: A gold loan is backed by collateral such as gold ornaments or jewelery.
2. Loan Amount: Usually, the banks or NBFCs provide up to 75% of the gold’s market value (as per RBI guidelines).
3. Minimal Documentation and Quick Disbursal: Only basic KYC documents (ID & address proof) are required, and thus, approval and disbursal are faster compared to personal loans, often within hours.
4. Flexible Tenure: The gold loan tenure usually depends on the lender. At Poonawalla Fincorp, the tenure is 12 months.
5. Repayment Options: There are several repayment modes for gold loans, such as EMI, bullet repayment (interest-only during tenure), or part payments.
6. Lower Interest Rates: As gold loans are secured with collateral, they generally have lower interest rates compared to personal loans. At Poonawalla Fincorp, the interest rate for a gold loan starts at 11% p.a.
7. No Credit Score Dependency: The gold loan eligibility depends on gold value and its purity, not your CIBIL score.
8. Security of Gold: Along with quick funds from a gold loan, you can also stay worry-free as your gold is safely stored in secure vaults by the lenders.
9. Prepayment/Foreclosure: You can close your gold loan early by paying some nominal charges to the bank or NBFCs. At Poonawalla Fincorp, the foreclosure charge is up to 1% of the loan amount, along with applicable taxes if done within 30 days.

Read Also: What is a Gold Loan or a Loan Against Gold?

What’s the Cost Difference Between Breaking an FD and Taking a Gold Loan?

You might think what would be the difference in cost if you opt to break an FD or take up a fresh Gold Loan? Let’s understand this with an example:

For example, Mr. X has invested ₹5 Lakh in an FD with 7% p.a. interest for 5 years.

To summarise, while breaking an FD may appear easier at first, choosing a Gold Loan assures that you cover your unforeseen expenses without compromising long-term asset growth.

What are the Additional Advantages of Choosing a Gold Loan?

Other than quick approval and minimal documentation, there are several more benefits of gold loans that make them a smarter choice in comparison to other financing options, such as FDs.

Here are some of the other advantages of a Gold Loan:

1. Value of Asset: Instead of just keeping the jewellery in lockers, you can unlock its financial value without selling it.
2. Custom Tenures: Gold loans can be taken up for very short periods or longer durations of up to 12 months, making them highly flexible.
3. Renewable Facility: After repaying the loan, you can renew it with the same gold instead of having to go through the long procedure again.
4. No End-use Restriction: The fund obtained from a gold loan can be used for any purpose, such as weddings, education, business, medical needs, or travel, without any limitation from the lender.
5. Protection Against Market Volatility: Gold prices often remain stable or increase; in certain situations, increasing gold value boosts the loan-to-value ratio.
6. Emotional Security: Without the need to sell gold, you can continue holding ownership of your gold jewellery, often carrying emotional or heirloom value.

Read Also: 8 Important Things to Consider Before Applying for an Instant Gold Loan

Opting for Poonawalla Fincorp's Gold Loan During an Emergency

Poonawalla Fincorp's Gold Loan is not only a convenient means to obtain quick funds during an emergency; it’s also an effective tool for improving your financial profile without disrupting your other savings. The benefits of a gold loan include:

• High loan amounts of up to ₹50 lakh
• Attractive gold loan interest rates starting at 11% p.a.
• Flexible repayment choices like EMIs or bullet payments

Our Gold Loan application process is simple and requires only basic KYC documentation. There are no hidden costs, making it easier for your financial planning. By borrowing wisely and repaying on time, you can improve your credit score, demonstrate financial discipline, and preserve your other funds for wealth growth.

To Conclude

In times of extreme emergency, breaking your FD can make you lose your hard-earned earnings and long-term financial growth. A Gold Loan, on the other hand, provides immediate access to funds without any effect on your fixed deposit interest rates and other investments.

By borrowing wisely and repaying on time, you can protect your assets, boost your credit score, and maintain control over your finances. 

Are you looking for a trustworthy Gold Loan option? Apply for a Gold Loan with Poonawalla Fincorp today and benefit from fast approvals, affordable interest rates, and the security of borrowing against your own assets.

Frequently Asked Questions

If I take a Gold Loan, will there be any effect on the interest I earn on my FD?

No, there won’t be any effect as you don’t break your FD and it continues to earn interest and grow, while the Gold Loan provides you with immediate liquidity.

Is it possible to take a Gold Loan even if I have Fixed Deposits?

Yes, you can pledge your gold for a loan without affecting your FD, allowing you to continue owning both assets.

How does repaying a Gold Loan benefit my credit score?

Timely repayment of your Gold Loan EMIs will enhance your credit profile; however, breaking an FD won’t have any such positive impact on your credit history.

What are the consequences of repaying my Gold Loan early instead of breaking an FD?

Several lenders (including Poonawalla Fincorp) provide the option of part-payment or foreclosure without incurring hefty fees, allowing you to save money on interest. Breaking an FD early, however, generally results in penalties and lower returns.

How quickly is it possible to get funds through a Gold Loan?

Gold loans are approved within a couple of hours, thus serving as one of the easiest options to get cash in an emergency.