First things first, what is the difference between loan against property and a personal loan? Property Loan is a loan that is taken against an individual’s property which can be commercial or residential. This is to means that the property acts as the loan security such that if you are not able to offset the loan as per its terms and conditions your property acts the collateral damage. You are at liberty to use the loan for any purpose. On the other hand, a personal loan is unsecured, which means that you are given the loan based on your credit score, monthly income, etc. The loan is to be used for any purpose as well.
People tend to have a challenge choosing between the two because they both come with their own fair share of advantages and disadvantages. Where loan against property seems like the best option, there appears an obstacle or limit that makes you consider going for a personal loan and the opposite is true. However, you can still weigh down all the parameters from both and still be able to make a solid decision on the type of loan that would favor you the best. The bottom line here is that at the end of the day, you have to make a choice between getting a Loan against Property or the unsecured personal loan.
It shouldn’t be a hard decision to make given that this guide has highlighted a number of important aspects that should be looked upon when trying to figure out which alternative is better than the other.
Evaluation of what is better between personal loans and loans against property
The following are important loaning aspects that will help you make a decision between going for a Loan against Residential Property or commercial property and personal loans:
- The loan repayment period. Also known as loan tenure, this is the period or duration in terms of years within which you are supposed to repay the loan. As for repaying a loan against property, most banking institutions offer between a period of 5-15 years, which can be determined by a number of factors such as interest rates and the loan amount awarded. A personal loan repayment period on the other hand mostly goes for a maximum of 5 years, again period subjective to other factors. In terms of which is the better option in relation to repayment period, it is fair to say that while a Loan against Commercial Property or residential property will give you a longer period to repay, you could end up paying more in terms of interest which isn’t the case for a personal loan which comes with a shorter repayment period. The amount awarded in a personal loan also determines the interest you will be charged for that loan for the five years or so that you will be repaying it.
- Loan processing duration. A loan property processing time is likely to be longer compared to that of a personal loan because the respective lenders will be going through various documents in a bid to verify that the property really belongs to you. For a personal loan, the processing time isn’t likely to go beyond a week because all that is to be evaluated is your credit score or your monthly income.
- The interest rate. Since loan on the property comes with security, the interest rate is likely to be lower compared to that of a personal loan. Failure to repay the loan results into loss of property you had secured the loan with. Personal loan interest rates are generally high because there are no collaterals involved. Also, failure to be timely with your loan repayment for a personal loan attracts a higher interest rate and a tainted credit score. Generally, the higher the interest rate, the more you are likely to pay in monthly installments when repaying your loan and vice-versa.
- Effect on credit score. So would you like to know which among the two earns you a high credit score? Most definitely, it is the unsecured personal loan because the lender here doesn’t have any advantage of your collateral. The credit score on the other hand for a loan on property tend to be lower. Well, it is fair to say that consistent loan repayment from respective borrowers will always earn them impressive credit scores despite the type of loans they had borrowed. This is because you can still repay your full personal loan only for late or fined remittances to end up affecting your credit score in a certain magnitude.
In conclusion, whether you want a Mortgage Loan India, personal loan or any other type of loan, you should go through the terms and conditions from respective and potential lenders because they will help you get a perspective of the kind of deals you are likely to get.