Which one is Good? Loan against property or Personal loans
Everyone knows that we all must go through situations where we require immediate funds to address our requirements. While there are multiple options available nowadays to borrow money, not every opportunity can be considered an ideal way. There are few financial institutions which lend money at an unrealistically high-interest rate, thus hampering the repayment phase of the borrower. Hence it helps to be careful and borrow from the right sources. Let’s discuss one of the most popular loan types - personal loans & loan against property.
What is personal loan and loan against property:
A personal loan is an unsecured loan which can is availed without pledging any property. In contrast, a loan against property is a type of loan where the borrower has custody of the borrower’s property to finance the borrower.
Loan against property vs personal loan - which is good?
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Critical factors
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Loan against property
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Personal loan
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Loan Amount
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Due to its secure nature, eligibility amount for a loan against property is usually higher with upto 70% of property value
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Borrowers can avail upto 40% - 50% of the income of borrower which is lower than LAP
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Interest Rate
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Compared to a personal loan, LAPs have a lesser rate of interest ranging from 11% to 16%
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There are few financial institutions which offer personal loans with interest rates upto 24%
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Loan Tenure
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The loan tenure can go upto 15 years based on their secure nature
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The loan tenure is limited upto five years, and it is always good to close them sooner
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Loan Processing
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The process is longer as the banks/NBFCs take time to evaluate the property and can be comparatively slower than personal loans
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Here, the lender needs to assess the credit score and income of the borrower, and hence the process is faster
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Credit score
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The credit score of a loan against property is usually lower as the lender has the collateral of the borrower and there is a relatively lower risk and a lower rate of interest.
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The credit score assigned for a personal loan is usually higher as the borrower pays a higher rate of interest in comparison with a loan against property.
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Immediate requirement
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Loan against property might not work for an immediate requirement of funds as the banks/NBFCs need to evaluate the property before processing of the loans
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Personal loans are high for the urgent necessity of finances as the loan processing is faster and the financial institutions need to know the credit history of the borrower
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Takeaway:
Both loans against property and personal loan have their own set of pros and cons. Personal loans will work for those who have an immediate requirement like marriage expenses, travel, business expenses, hospitalization. In contrast, loan against property works in favour of those who have collaterals and want a lower rate of interest. Hence you need to assess your financial situation thoroughly and opt for a personal loan or loan against property accordingly.
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