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Should you choose a personal loan or loan against property?


Should you choose a personal loan or loan against property?

Many people who require funds urgently often get confused between choosing loans against property or personal loans. Which one should you choose? Personal loans are more popular for salaried employees who have a credit history since these are unsecured loans, i.e. they do not require any collateral/security and can be obtained on the basis of your monthly income, age and employment alone. These loans are sanctioned swiftly and disbursed rapidly.

However, what about those who have not built up sufficient credit and require funds fast?  Loans against property are secured loans which are taken against any property which is either owned or under a home loan. The property being considered is assessed to work out its current market value and a specific percentage (varies from one lender to another) is disbursed to the customer by way of the LTV or loan-to-value. There are several other aspects like the purpose of the loan, repayment abilities and others that are ascertained prior to the amount being sanctioned.

The repayment of the loan takes place through EMIs for a specific tenor at a rate of interest which has been pre-determined. Customers can get a loan against property for various reasons including medical emergencies, business loans, weddings and higher education of children. Personal loans are taken from banks and NBFCs for taking care of one’s requirements. The essential criteria for availing of personal loans includes income levels, employment history, credit history and repayment abilities.

Since these loans are unsecured, borrowers do not have to provide collateral like property or gold to get the same. However, since these are unsecured loans, the rates of higher are on the higher side as compared to loans against property. Also tenors of personal loans are also lower as compared to LAP where the latter usually has tenors up to 15 years while the former has tenors up to 5 years. The maximum loan amount is usually lower in case of personal loans up to a maximum of Rs. 15-20 lakhs and that too upon meeting strict eligibility regulations.

Personal loans usually have swifter disbursement as compared to loans against property. Prepayment can be done on loans against property without any charges subject to particular terms and conditions. However, this may not always be possible in case of personal loans. In case a loan against property has not been taken up to the maximum limit, a top-up loan can be availed on the current loan. This facility cannot be availed in case of a personal loan.

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