Personal Loan or Loan Against Property Which One Is Good for You

My daughter’s wedding is in 6 months. While I have some money to manage a lot of things, I need extra cash to make proper arrangement. So, I checked with the bank, and I was told that I could take either a personal loan or a loan on the property. What should I do? Which one is the right route?

Financial emergencies like medical treatments, weddings, higher education, etc. can leave any individual in a cash crunch. In a situation like this, there are two options: either you can take a personal loan or a loan against property. Both options have some benefits and features. 

Let’s explore these credit products.

What is Personal Loan?

A personal loan is an unsecured type of loan which can be availed from the bank or financial institution to fulfil your personal needs. Whether you have to sponsor a wedding or renovate your home, a personal loan can be taken for different purposes. 

Since the nature of the loan is unsecured, you don’t have to keep any collateral, which also means that interest is high. This is because the risk factor of the bank increases with unsecured loans, which leads to an increase in the interest rate. 

What is Loan Against Property?

As already revealed by the name, loan against property eligibility depends on the property, you will keep as collateral. This property can be a plot, commercial, or residential unit. Similar to a personal loan, you can use a loan against property for any desired purpose.

Since the nature of this loan is secured, you can avail lower interest. 

Which One is Better?

While loan against property and personal loan both have similar features, benefits of both the methods vary.

Let’s compare both:

Loan Amount

In a personal loan, the amount is decided by your income and relationship with the bank. Another factor that contributes to the amount is the unsecured nature of this loan. Both the things combined overall leads to a lower loan amount when compared to loan against property.

If you pass the loan against property eligibility, you can get a loan of up to 70%. This is a huge amount and extremely useful if you need a high amount of cash.

Tenure

Borrowers usually have more time to repay the loan against property because it is a collateral-based loan. So, the bank has some security.

However, personal loan tenure is less, up to 5 years. This is because the amount is less and there is no security kept with the bank. 

Interest Rate

Interest rate, as already discussed, can be one of the biggest factors contributing to the feasibility of loan against property.

You can get around 11-12% interest rate for loan against property. But, the personal loan can have as high as 24% interest rate. So, even with reduced tenure of payment, the interest paid by the borrower is very high.

Processing time

Loan against property is not quick because the bank requires additional time to check the documents. So, it generally takes 20-30 days to clear loan against property. But, personal loans are disturbed according to credit score. Hence, there’s quick disbursal in this case. 

Conclusion 

Based on your requirements, you can take a personal loan as well as a loan against property. However, considering the interest rate, tenure, and amount, loan against property is an optimum option.