One of the oldest questions in finance which keeps resurfacing again and again – which is better: personal loans or loan against property? This arises due to the simple concept that both of these loans offer similar benefits, that is, it helps you out in your hour of need, thereby requiring you to pay the amount slowly and steadily at your own convenience.
The dilemma arising from the choice you have to make between the two types of loans can get tiring at times. You need to know the two in order to make a better choice, depending upon the benefits each of them has to provide.
To begin with, what is a personal loan?
As the name itself suggests, a personal loan is a loan you raise from the bank for your personal use. There are however no restrictions on the way you decide to spend the money loaned to you. You can use it to pay off debts, build a house, set up a business, or even arrange a wedding. The uses of the money received via a personal loan are endless.
Now, what is a Loan against Property?
A loan against property or LAP or property loan, as it is more commonly known as, is a form of a secured loan. This is because the loan is given on terms that a certain property is held as collateral. The nature of this property is immaterial. It could be residential property (self-occupied or even rented), commercial property or even a considerable piece of land that one would own.
Coming to the expenses, there is no restriction on how one can spend the money loaned as LAP. To finance a child’s education, fund a wedding, construct a home, meet medical expenses, buy vehicles or to even finance one’s business is where the LAP amount comes in handy.
The choice between personal loan and property loan can be confusing. Here are some ways how you can choose between the two:
- Processing time:
Mortgaging property makes one eligible for property loans. To make this happen, the lender needs to verify documents. To gauge one’s loan repayment capacity, one has to submit documents that support their income. The verification can take 15-30 days, thereby making LAP not suitable for emergency loans. Personal loans are generally processed within 7 days.
- Interest rates
Interest rates are lower for LAPs. It can be anywhere between 11-16%. Interest rates of a personal loan can soar as high as 24%. Borrower’s credit score determines the rates in personal loans.
- Tenure of loan
In the case of property loan, loan tenure can be as high as 15 years. The highest tenure a property loan can reach is five years. This however comes with the consideration that the longer the tenure, the lesser the EMI. This increases the affordability of big loans. Moreover, longer tenure also means more interest pay-out.
In conclusion, thinking over these three essential factors may help you make a better and informed decision about the kind of loan you would want to opt for. This consideration based on your needs only makes it an impeccable decision in the time of your need.