Secured vs Unsecured Loan: Which is Better?
No matter how well you plan and put aside savings for a rainy day, there may be times when an unforeseen situation arises, forcing you to consider seeking a loan to bear the costs. However, it is just as important to think through your choice of loan as it is securing the required funds. A loan can have a lasting impact on your finances and should be a decision that bodes well for your financial ambitions and goals. It is appealing to jump at the first loan offer you get, especially if your needs are pressing, but borrowers should exercise caution over the type of loan they choose.
If you need funds to address personal expenses, such as the cost of a business expansion, overseas education, weddings or even emergency medical treatments, you may find personal loans to be the obvious choice. However, a personal loan is not the only option you have that guarantees funds with no end-use restrictions. Individuals who require urgent funding should also consider a loan against property – a secured sanction with no limitations on how the loan sum is used.
What is a Loan Against Property?
A loan against property is a mortgage loan sanctioned against a property used as collateral. Given that the sum is extended to the borrower against a guarantee, the loan is considered secured and opens the doors to more competitive and attractive loan terms.
Borrowers can benefit from the sizeable sanction the loan offers, scaling up as high as 5 Crores, or even higher, depending on their eligibility and needs, at reasonable interest rates, typically starting as low as 8.60% p.a. What’s more is that the repayment tenor for such loans tends to be lengthy, giving you ample time to pay back the loan amount at a comfortable pace. The most compelling benefit of a loan against property is the absence of any end-use restrictions on the principal amount, letting you use the sizeable funds for any reason you deem fit.
The application process for a loan against property has evolved and can be completed in minutes – almost entirely online. The applicant may be required to visit the branch only to submit the documents and sign the paper, and even that can be avoided if they avail of the doorstep documentation pick-up services that most lenders offer today.
What is a Personal Loan?
Personal loans have enjoyed immense popularity in both the public eye and lending markets. However, its benefits are severely limited in comparison to a loan against property. Personal loans are unsecured loans offered for an array of expenses but at steep interest rates. Borrowers also get a smaller loan sum that can limit their spending on urgent needs. Even the repayment tenor for a personal loan is comparatively shorter, stretching from 11 to 12 months to a couple of years. This can make the repayment process uneasy for borrowers who need more breathing time.
Loan Against Property vs Personal Loan: Differences
Aspiring borrowers who are still confused about which loan to choose can peruse through this list of differences to make an informed choice.
- Interest Rate
A loan against property is bound to guarantee more competitive interest rates given its secured nature. The lender has the security of the collateral, lowering the risks involved, as the sum can be recovered through the sale of the property – should the need arise.
A personal loan, on the other hand, is more expensive, as it is an unsecured loan extended at higher interest rates. Typically, lenders offer personal loans starting from 11 to 12%, which is higher than a loan against property.
- Loan Amount
A loan against property offers more in terms of funding than a personal loan. The most a borrower can usually get from a personal loan is 20 Lakhs, while a loan against property borrower can benefit from sizeable sanctions worth 5 Crore, or higher, which is helpful if big-ticket expenses are waiting to be met.
- Repayment Tenor
A loan against property is especially beneficial for those whose repayment capacity can only accommodate EMIs that are reasonably paced and affordable. Repaying a personal loan can become expensive given the high interest rate and the short repayment tenor – often making the EMIs bigger than most can manage.
- Loan Disbursal
The application process and fund disbursal for a loan against property can take up to 3 days if all goes well. A personal loan can be sanctioned almost immediately and scores better in this regard. Lenders take time to verify the loan against property documents that applicants submit and disburse the amount based on the applicant’s eligibility and financial profiling. Personal loan applicants are not subjected to such checks, as the loan is unsecured and disbursed at less lenient terms.
Applicants who need sizeable funding urgently should consider opting for a loan against property instead of a personal loan – purely because of what they stand to save. In every aspect, the secure loan does better than its unsecured counterpart and is more cost-sensitive to individuals’ finances. Even when you’re in dire need of funds, the long-term impacts of a loan are essential things to consider.