Education Loan vs Gold Loan: Which One is Better for your Studies?

The cost of higher education has skyrocketed in India, creating a substantial monetary burden on households. It is predicted that the cost of an engineering degree will level up to around Rs.25 lakh to Rs.30 lakh by 2025, and so will be the condition of other educational fields.

Hence, the majority of the population is flocking towards education loans or gold loans for education to tide over the said burden. However, it is imperative for a borrower to choose a credit option that proves beneficial in the long run.

Limitations of availing of an education loan

The Government of India has launched several education loan schemes to cope with escalating education expenses and help students achieve academic heights. 

Albeit education loan helps students reach their academic goal, a majority of aspirants face difficulty in completing their degree both in India and overseas because of the following limitation of the credit facility:

1. Education loan has comparatively stringent eligibility criteria, which the aspirants sometimes fail to adhere to. As per eligibility criteria, students can reap the education loan benefits only if they take admission to a recognised college. 

2. The fund obtained from education loans is not adequate to cater to overall related expenditure. These funds do not cover medical expenses, travel and accommodation fees, food, etc., which aspirants will have to bear, hence draining their savings. 

3. Students generally need to bear higher interest rates since an education loan is an unsecured credit option. Moreover, education loans are sanctioned depending on the applicant's financial standing. Hence, it is difficult to derive such funds.

All these eligibility parameters are too stringent to meet, especially during a financial emergency. Hence, students can ideally look for alternative options like gold loans for education.

Reasons to consider a gold loan for education

Gold is one of the prized possessions of an individual and is a significant part of this country's culture. People invest in gold for ornamental purposes and strengthen and secure their financial health. Moreover, people can pledge their gold items as collateral to avail an education loan against gold, derive considerable loan principal and meet an array of monetary requirements, one of the notable being collecting funds for educational expenses.

Apart from knowing what is a gold loan, individuals must know the best choice to fund education. Here are the benefits that gold loan bestows on its borrowers, which makes it a viable credit instrument for those in dire need of funds to continue scaling their academic heights in life:

1. Ample loan amount: Availing gold loans helps individuals derive high quantum loan amounts considering the high price of gold. The loan amount is sanctioned against the physical gold. Additionally, the LTV ratio on gold loans is capped at 75%, thus enabling borrowers to make most of their investment.

2. Affordable interest rate: As a gold loan is a secured borrowing option, borrowers are charged a nominal interest rate. Lenders are the conditional owner of the pledged commodity. Hence, risk factor on the lender's part comes down by a great margin. Also, the affordability of borrowing depends mainly on the current gold loan rate.

3. Less stringent eligibility criteria: Unlike education loans, a gold loan has lenient eligibility criteria and simple documentation. This helps students receive needed funds to continue with their higher studies without any financial hassles. Individuals are not required to engage in lengthy documentation procedures, making borrowing convenient. 

4. No requirement for CIBIL score: This is perhaps one of the notable reasons why availing a gold loan is highly beneficial. In most cases, borrowers will have to show a decent CIBIL score to derive a loan amount at an affordable interest rate. The loan amount also depends on the borrower's credit score. However, this is not the case for availing a gold loan, thus helping students who do not have a borrowing history. Furthermore, a gold loan helps individuals improve their credit scores.

5. Flexible end-use: Borrowers can use the sanctioned sum to meet any financial expenses without stating it to the lender. Students pursuing their education overseas are not entitled to college or university fees and other academic charges. Overseas educational expenses include travel and living costs, medical expenses, etc. Hence, a loan on gold helps students pursue their careers by funding these additional expenses.

Furthermore, a gold loan comes with easy repayment options, helping borrowers choose a tenor that suits their repayment capability.

To sum up, both education and gold loan for education cater to educational expenses. However, depending on the urgency, loan amount and area of usage, borrowers must go for either of the credit options accordingly.