People often seek loans for various reasons such as purchasing a home, starting, or expanding a business, pursuing higher education, or covering unexpected medical expenses. Loans provide individuals with the necessary financial support to achieve their goals. In a world where economic demands and opportunities arise, loans offer a practical solution by allowing individuals to access funds upfront and repay them over time, enabling them to navigate financial challenges and seize valuable opportunities that might otherwise be out of reach.
Borrowers prefer to opt for loans against property or personal loans in such cases. So, which one of the two is the better financial tool to help one navigate a financial emergency? Before we answer this question, let us first understand what are loans against property and personal loans
What is a Loan Against Property?
A loan against property is a type of secured loan availed of against a residential or commercial property. In the case of a loan against property, borrowers can typically borrow up to 75% of a property’s value as a loan. Loans against property give borrowers access to a substantial amount to meet housing or business-related needs.
What is a Personal Loan?
Personal loans are a type of unsecured financing. These loans do not involve any collateral and lenders sanction these loans based on the credit profile of the borrower. Personal loans come with zero end-use restrictions. Therefore, one can use it to meet urgent needs such as medical or educational expenses, weddings, etc.
Let us now highlight the key differences between loans against property and personal loans to help our readers decide which loan option would be a better choice for them.
Loan Against Property vs. Personal Loan: Detailed Comparison
Here are the key differences between loan against property and personal loans:
1. Interest Rates
When it comes to interest rates, loans against property have lower interest rates than personal loans. Since loans against property are secured in nature, lenders charge a lower loan against property interest rate on them. Personal loans, on the other hand, do not involve any collateral.
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Lenders therefore charge a higher rate of interest on personal loans. Currently, personal loan interest rates start from 9% but can easily go up to 20%, depending on the credit profile of the borrower.
2. Loan Tenor
When it comes to loans, the loan tenor is important since it determines how conveniently one can repay it. Having the option of a long repayment tenor allows borrowers the comfort of repaying the loan in a stress-free way.
In terms of tenor, property loans offer longer tenor than personal loans. With loans against property, borrowers can choose to repay their loan typically over a period of up to 17 years. However, for personal loans, the maximum tenor that one can opt for is typically 7 years. Thus, in the case of property loans, one can pay the EMIs conveniently even if the principal is high.
3. Sanction Amount
Under loans against property, borrowers can avail of typically up to 75% of a property’s market value as a loan. With property loans, borrowers can avail of a sizable loan amount. Since personal loans are unsecured loans, borrowers may not be able to avail of a sizable amount as compared to property loans.
4. Processing Time
When it comes to processing time, personal loans are sanctioned quickly. Personal loans are not backed by collateral and therefore, document verification may not take much time. One can expect to get their loan processed in only a few days. In the case of loans against property, lenders verify the property documents along with the general documents required for loan application. The lender may choose to visit the property and verify its credibility before sanctioning the loan. The entire process may take a few weeks.
Final Words
In conclusion, both loans against property and personal loans serve as viable financial solutions, each catering to distinct needs. A loan against property leverages the value of one’s collateral, offering substantial amounts with relatively lower interest rates, making it ideal for significant expenses like home renovations or business expansions.
On the other hand, personal loans provide flexibility and quick access to funds without requiring collateral, making them suitable for various purposes such as medical emergencies. Choosing between the two depends on the borrower’s financial goal. It’s crucial to thoroughly assess individual financial situations and goals before deciding on the most suitable loan option.
