If you are standing at the crossroads confused about which type of loan you should take, you have come to the right place. Two types of loans most people are confused to choose are loan against property and unsecured personal loans.
Here we’ll discuss what the two loans offer and make a quick comparison of both types of loans. That will help you decided better about the loan type suitable for you.
Loan Against Property
In this type of loan, the lender would lend you money and keep your property as security until you repay the loan. It is one of the cheapest loan types just below home loans and offers low loan against property interest rates. You can use this kind of loan for various purposes like medical emergencies, weddings, expanding business, studying abroad and more.
The lender doesn’t take anything as security while providing you with an unsecured loan. It can also be used for various purposes like weddings, studying abroad and more.
Loan against property vs Unsecured Loan
- Loan Amount
Loan Against property reduces the bank’s risk, and likewise, it provides you with a higher amount of loan. You can typically get a loan up to 70% of the valuation of your property. That is a considerable amount since the properties are quite expensive.
It’s challenging to get an unsecured loan anywhere near that amount. Your income, credit score and ability to repay determines the amount you’re eligible to take as a personal loan.
- Interest Rate
As discussed earlier, personal loans are high-risk loams as compared to loans against property. Understandably, the interest rate on unsecured loans is much higher than that on loans against property.
You would typically pay anywhere between 11%to 16% on loans against property interest rates. That interest rate shoots up to 24% in case unsecured loans. Your employment, income, credit score, job security and location determine the interest rates you’ll pay on personal loans.
- Loan Processing
Personal loans gain a point over loans against property here. It is much easier to verify documents and get loan approval in unsecured loans. Likewise, you can get your loan within hours at times. They only have to confirm your credit score, income and repaying ability here.
Banks though have to do much extensive and careful research to check the legality of your property. Likewise, that have to carry internal checks to evaluate the value of the property and quote you a sum accordingly.
- Credit Score
Since personal loans are unsecured, you would get a higher credit score when you pay it back. On the contrary, loan against property are relatively safe and call for a lower credit score. Moreover, you have the advantage of lower interest rates while paying a loan against property.
In all cases, consistent repayment is essential to ensure a better credit score. As discussed above, loan against property is excellent for long terms and high-value loans. On the other hand, you can opt for unsecured loans if you need a loan on concise notice.