Loan against property vs personal loans
A loan against property is mortgaging the documents to the bank to raise funds for emergency needs. While as personal loans are the ones that can be obtained as collateral-free loans from the bank for satisfying any of the personal needs. Both the loan against property raised funds and the personal loan based funds can be utilized for any purpose. The bank does not ask for proof of utilization of funds in case of any loans. After the approval of loans, the bank credits the funds into the bank account of the borrower which the borrower is free to spend the funds wherever they wish to spend. The only difference is that the funds raised for a loan against property can even be utilized for the purchase of another property, while the personal loan fund cannot be used for the purchase of property as for that purpose, home loan product is available in the market. Also, the funds which the bank approves in case of personal loans are lower than the ones approved for the loan against property. The bank approves maximum funds of Rs.15 lakh in case of personal loans, while the loan against property funds can be approved on an average of Rs.1 crore for a salaried individual and Rs.3.5 crores for the self-employed.
The estimated approval for personal loans is done based on the salary of an individual. In comparison, the approval for a loan against property is done in reference to the value of the property valuation of the individual. The bank approves the loan against property up to 75% of the property valuation. In comparison, as the personal loans can be approved, up to 45-50% of the monthly salary has been drawn for repayment of monthly installment. And the tenure for personal loans is lower as compared to the loan against property. The banks stress major proof of an individual’s salary to approve the personal loans as the personal loans are collateral-free ones. While in case of a loan against a property, the bank approves the loans based on the valuation of the property and verifies the titles of the property. If the market value is high and the property documents are available with clear titles, the bank approves the higher amount of loans against the property.
Benefits & features of personal loans:
- Personal loans can be utilized for personal needs like travel, medical, home renovation, and marriage purposes. Etc.
- Also, the loans are collateral-free ones. The loans can be taken based on the salary of an individual.
- Personal loans are charge interest rates of 11-24% per annum. This is comparatively higher than a loan against property.
- Personal loans require documents like government-approved identity proof, income proof, and employment proof for the approval of loans.
- The personal loans can be taken for a tenure of five years. And is not liable to tax exemption under any of the circumstances.
- Personal loans require a good CIBIL score for the approval of loans as there is no mortgage with the bank for recovery, and thus the banks are cautious about extending loans to the borrower, which should not turn into bad debt.
Benefits & features of loan against property:
- A loan against property can be utilized for a similar purpose as personal loans; only the additional usage is that the loan against property can be used for the purchase of property as well.
- A loan against property is a mortgaged loan wherein the property documents are kept mortgaged by the borrower to the bank. And the bank has the right to forfeit the documents and seal the assets in case of default of loans. Thus the banks are confident with the recovery of the loan amount in case of non-repayment of dues.
- Loan against property is charged interest rates of 9-15% per annum.
- A loan against property requires the documents like government identity proof, property documents with clear titles, employment proof. Etc.
- The loan against the property is approved for a tenure of 15 years maximum. And tax exemption is provided only in case of the funds utilized for the purchase of another property and only on the interest amount repayment of loans.
- The CIBIL score is not given major importance in the case of loans against property as the banks are confident about the recovery of loans. Only if the CIBIL score is extremely poor then, in that case, the loans approval can be rejected. Otherwise, the chances of rejection of mortgage loans are nil.
Thus the application of both the personal loans and loans against property is similar; still, there is a major difference between the personal loans and loans against property. The personal loans are collateral-free loans while as the loan against property is collateral loans. Also, the tenure for personal loans is lower and interest rates charged are slightly higher than loans against property.