Do you need a large loan amount to meet your numerous needs and confused between a personal loan and the loan against property? If yes, then you are not the only one!
To clear your confusion, it would be better to know the differences between a personal loan and a loan on land property.
Go through this post and be sure of what will suit you the best!
What is a personal loan?
A personal loan is one of the most popular modes of finances available in India. It is an unsecured loan, and you don’t have to submit any collateral to get the approval. Banks and non-banking finance companies (NBFCs) provide this facility.
A personal loan is approved on the basis of your creditworthiness. Lenders determine it by checking your credit score, repayment, and income and employment history.
If you have a stable source of income with a cibil score that reads 750 or more, then you can get the loan approval fast.
But since any security does not back the personal loan, lenders charge a higher interest rate to cover the risk of defaults. A personal loan is among the best ways to cover your immediate and other needs instantly.
You can use the loan amount for weddings, debt consolidation, business expansions and more. Most of the lenders let you repay the loan over a flexible tenor of 60 months.
What is the loan against property?
As the name suggests, the loan against property or mortgage loan is provided when you keep your property as the collateral with a lender. In turn, you get to access a large loan amount at an affordable rate of interest.
Considering it as secured debt, many people apply for it as they don’t need to manage a higher interest rate, unlike the personal loan. Popular banks and NBFCs also give the facility of loan on land property in India.
The property that is kept as the collateral could be any – commercial and residential. The loan against industrial property is also allowed.
Lenders permit borrows to keep one or more property to get the loan. The loan amount is determined by evaluating the mortgaged property’s market value (Loan to Value). The loan amount is 75-90% of the value of the property and never in full.
Not only do you get to repay the loan over a longer tenor and pay small EMIs but even continue to live in the mortgaged property.
Personal loan vs loan against property – Which one to go for?
Let’s enlist some vital features and benefits of both financing options. It will help you make the correct decision as per your needs, repayment capacity and more.
- Loan types
Personal loan is an unsecured loan, and that means not keeping anything as the collateral. On the other hand, the loan on land property needs you to pledge your property – it is secured finance.
- Rate of interest
The rate of interest on personal loan is higher as there are no collaterals involved. The loan against property interest rate is affordable as you are pledging your property.
- EMI payments
The EMI amount in a personal loan facility is higher since the rate of interest is more. A borrower pays reduced EMIs as the interest rate on loan against property is lower.
- The sanctioning of the loan amount
While availing the personal loan, the income of the borrower, along with the repayment record and credit score determines the value of the approved loan money. On the other hand, the loan against property’s sanctioned money is determined by a borrower’s income and value of the mortgaged property.
- The repayment structure
Most of the leading lenders provide a repayment tenor ranging 12 months and 60 months (1-5 years). On the other hand, the repayment tenor of the loan against property ranges between 2 years and 20 years.
- The loan disbursement
Once the application gets approved in a personal loan, the disbursed money gets credited in your bank account within 24 hours. On the other hand, the approved loan against property money gets disbursed within 4 days.
The final words
You are now aware of the features of the personal loan as well as the loan against property. If you want to fix the need for funds quickly, then personal loans can help you.
The only thing is that you need to deal with higher interest, and your credit score should be strong for approval.
The loan on land property provides you with a higher amount at a lower interest rate.
For availing best personal as well as the loan against property, you can compare the best deals on a third-party website. This way, you will be able to pick the best offer meeting your needs and repayment capability.
