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Personal Loan vs Loan Against Property: Which is Better?

2 min 23 Jun 2022
Highlights
  • Personal Loan vs Loan Against Property: Overview
  • Personal Loan vs Loan Against Property: Differentiating Factors

Personal Loan vs Loan Against Property: Overview

When you need emergency funds and your savings fall short, a personal loan can be one of the options that comes to mind. A personal loan helps meet a variety of financial needs; however, it comes at a significant cost – a heavy interest rate and a short tenor. Hence, a borrower must weigh all the pros and cons before they choose to proceed. In this case, a Loan Against Property can be a better option as it comes with better loan terms and benefits compared to its unsecured counterpart.

In the past few years, both credit options have become quite popular. As a result, borrowers seeking to avail of funds have been asking an important question – which one is better? On this page, we help you assess which loan type would be more beneficial for you based on your financial needs.

Before that, let us understand what each loan type entails:

Personal Loan

A personal loan is a type of loan where a borrower does not have to provide any security. Since the lender does not have any security which can be used to recover losses in case of default, personal loans often draw a high interest rate.

Loan Against Property

A Loan Against Property, on the other hand, is a secured loan type that lenders offer against a property. The property mortgaged stays as security with the lender until the borrower has paid off the entire loan amount. One can use the funds to finance for business expansion, their child's education or wedding, medical emergencies, etc.

Now that we know what a personal loan and a Loan Against Property mean, the correct answer to which one is better depends on various factors. Let us look at each of these factors separately.

Personal Loan vs Loan Against Property: Differentiating Factors

Sizeable Loan Amount

If you need a sizeable loan amount, a Loan Against Property is always the better choice. Since personal loans are unsecured loans, lenders refrain from approving a big-ticket personal loan. More importantly, the amount you can avail of as a personal loan may solely depend on your personal income and repayment capacity.

For a Loan Against Property, however, lenders can release up to 70% of a property's current value – translating into a larger loan sanction.

Interest Rate

Personal loans draw a much higher interest rate than Loans Against Property. While the interest rate on personal loans can go up to 24%, the interest rates on Loans Against Property range from 8% to 16%. While one can negotiate a better interest rate, a Loan Against Property borrower has a better bargaining chip, namely their property collateral.

Repayment Tenor

In the case of a personal loan, lenders keep the tenor to a maximum of five years. On the other hand, the tenor for a Loan Against Property can stretch up to 18 years, allowing you a considerable period to repay the loan amount without a high degree of interest accumulation.

Final Thoughts

Even if you find yourself drawn to a personal loan, consider the many offerings of a Loan Against Property and more importantly – what you stand to save when you borrow one. The latter does well in terms of cost sensitivity and borrower comfort.

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