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From medical emergencies to repair work of the home, from an impending marriage in the family to funding higher education of son or daughter, people can have urgent cash requirements for various purposes. On such occasions, seeking a loan can be a viable option.Both personal loans and loans against property can fulfil your urgent cash requirements. However, you should thoroughly analyse the various aspects ofvs loan against property personal loan to understand both better before finalising which one to go with.
What Is a Loan Against Property?
As the name suggests, a loan against property is a secured loan where the lender sanctions a loan to the borrower against the borrower’s property that it holds as collateral. The borrower’s property remains mortgaged to the lender until the entire loan is repaid in full.
What Is a Personal Loan?
A personal loan is an unsecured loan where the borrower doesn’t pledge any collateral to the lender against the loan sanctioned.
Loan Against Property Vs Personal Loan
While both types of loans can be used for similar purposes, they broadly differ in some parameters. These differences can ultimately tilt your opinion on this personal loan vs loan against property debate.
| Sr. No. | Parameters | Loan Against Property | Personal Loan |
| 1. | Loan Amount |
The quantum of the loan solely depends on the property's value that is to be kept as collateral.
The lender can offer you a loan amount that can be anywhere between 40% to 70% of the value of the property you provide as security. The loan amount can be much higher than the maximum loan allowed in a personal loan depending on the value of the pledged property. |
The loan amount depends on various factors such as your age, salary, loan repayment capacity, existing liabilities, credit score, etc.
The lender will assess your risk profile based on the factors mentioned above and sanction a loan accordingly. Many reputed lenders can offer a maximum of Rs 60 lakhs as a personal loan depending on the borrower. |
| 2. | Maximum Loan Tenure | Twenty Years | Seven years |
| 3. | EMI | The EMI amount can be low. | Shorter loan tenure and higher interest rates can result in higher EMI amounts. |
| 4. | Rate of Interest |
Since it is a secured loan, the rate of interest can be significantly lower than personal loans.
Such loans usually carry interest rates between 11% to 17% per annum. |
Due to its unsecured nature, a personal loan can have a high rate of interest compared to secured loans.
A personal loan can offer interest rates anywhere between 11% to 26% annually. |
| 5. | Loan Processing Time |
In loans against property, the lender must inquire about the property to check its authenticity. The lender must check the property papers, tax status, ownership patterns, etc.
In the case of multiple ownership, a no-objection certificate must be signed by every owner before approving the loan. Additionally, there would be obvious documentation like income proof, address proof, etc. All this process needs significant time to complete. As a result, the processing time can take fifteen to thirty days. |
These loans solely rely on document verification and assessing the borrower's profile. They don't involve any checking or enquiry of collaterals as they are unsecured loans.
Therefore, the loan processing time is relatively short. It may take just one to eight business days for the loan approval. |
| 6. | Credit Score | Since the loan is approved against collateral, the borrower’s credit score doesn’t matter a lot. | The credit score is an important parameter for the lender to assess the borrower's creditworthiness. Furthermore, repaying the personal loan in time can help the borrower earn a higher credit score. |
| 7. | On Non-Repayment of Loan | The borrower can lose the property to the lender. | The lender can charge higher interest rates resulting in higher EMI. It will also negatively affect the credit score. |
The Better Option
It is clear that there are no clear winners in the personal loan vs loan against property debate. The better option depends on your requirements and urgency. If you need funds for any urgent personal issue, then you can consider opting for a personal loan as you can get the amount within a week, subject to the lender’s offer and approval.Conversely, you can consider a loan against a property if you want lower interest rates, low EMIs, and, most importantly, have ample property that can be put as collateral.Once you sort out the details, apply for the loan and prioritise solving the financial issue you are facing with the help of the loan amount.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
