Personal Loan or Loan Against Property?

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Confused between personal loan and loan against property? You need not be confused now. Let us know aboutthe advantages of both of them from different perspectives.

What is a Personal Loan?

First of all, personal loans tend to be an unsecured loan. This means that personal loans do not require an asset to kept as collateral with the lender against the loan. This type of loan are taken usually for a shorter period of time. This loan can be taken by salaried employee as well as by self employed person.

Personal loan can be used for various reason, i.e for wedding expenses, pay off medical bills, pay off credit card dues, home improvement,education, travel, etc. As these loans are unsecured, the risk for the lender is comparatively higher.

What is a Loan Against Property?

These loans are considered to be a secured type of loan. This is obvious because of the collateral that is kept with the lender by the borrower. The applicant keeps the residential or a commercial property as collateral for the loan to be taken. This usually happens when the tenure of loan repayment is higher and also the credit score is relatively lower.

One who applies for loan must be able to distinguish ones advantages and make a decision for what is a better option for him. Now let us compare the various aspects of Personal Loan with that of Loan Against Property.

  • Loan Amount

The loan amount is higher for a loan that is taken against a property. Here the property is said to be the collateral which can be residential or commercial. Usually, the loan is give upto 70% of the market of the property. This is most helpful when the amount of loan that you’re applying for is higher. A personal loan provides a lower amount of loan and is dependent on your credibility.

  • Tenure of Loan
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In case of a Personal Loan, the tenure of loan is lower to the extent of 5 to 7 years. While the tenure for Loan Against Property is higher, usually more than or equal to 10 years.

If you want the liability to be only for a shorter term, you should definitely look up for a personal loan.

  • Interest Rates

Personal loan being a varied type of loan, the interest rates on the same vary tremendously. It can go as high as 24% due to the attached risk factor.

While the interest rates on Loan Against Property is lower due to the collateral being provided. These loans bear interest rates from 11% to 16%.

  • Credit Score

Credit score is the score that determines your credibility i.e your ability to repay the loan. In case of personal loan, credit score plays a very vital role. Personal loan being unsecured and as well as with lower rates of interest fetches you a higher credit score if you repay the loan along with interest in time. This helps you built a good credit score and a credit history.

While a Loan Against Property is secured and involves less interest and hence is less riskier. In this case you fetch a lower credit score.

  • Processing of Loan

The processing time taken by personal loan is very less. It is the best option when you are in an urgent need. The digital lenders now enable customers to avail these loan within a period of 3 days. While the loan against property takes a still higher time.

Now it is on the borrower to decide the better loan system.

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