Whether it is about higher education, a medical emergency, a new home, or marriage, the need for extra cash arises. Every person at one point in their life has needed to take a loan. The changing times have made it easy to take loans through the organised banking system. Taking loans today is a common phenomenon and can be of great help. While some people find taking a loan stressful, others see it as an opportunity—many people like saving and then spending instead of taking a loan. However, the advancement in the banking sector makes it convenient for customers to take loans.
A personal loan (PL) and loan against property (LAP) are two of the most popular types of loans. Both have advantages and disadvantages, so choose what suits the requirement best.
What is a Personal Loan?
A personal loan can be considered an unsecured loan disbursed without any security. The loan amount is less because no property or collateral is involved for security purposes. This type of lending is suitable in case of lesser financial requirements. A person qualifies for this category based on their credit history and earnings. Such credits are easy to apply and can be used for almost everything. There are various personal loans, and the application method and interest rate vary from lender to lender.
Personal Loan Criteria
Credit Score
The lenders will quickly analyse how the person has handled their past credits. The reports for evaluating the credit history include details of previous loans, past payments, and other records that may influence the repayment of the loan.
Income
The next thing to be scrutinised will be the income. It assesses whether the person has enough earnings to repay the loan. The current debt may be crucial in determining whether the income is going to be alright to pay the instalments or not.
The process of application may differ slightly from bank to bank.
However, the basic requirements include
- Photograph
- Proof of identity
- Electricity bills or passport for address proof
- Salary statements
- Bank statements
What is Loan Against Property?
A loan against property involves the disbursement of finance against any residential or commercial property. It is a secured loan because it involves an immovable asset for security. The property is held for security reasons until the loan is paid back. As a result, the amount of LAP is also higher. This is one of the cheapest loans post-home loans. A locked-up property can be used to help meet personal finance needs. However, the amount also depends on the value of the property.
Apply For Quick Loan Against Property Criteria
Repayment of Loan
The first step to applying for a quick loan against property criteria includes repaying the entire amount on time. It can be repaid in a period ranging from 12 months to 20 years. The time frame will be different for different lenders.
Evaluating the Property
Property evaluation is one of the key aspects of LAP. The lender will evaluate the property in context to present market value. The amount of the loan will be based on that value. Generally, lenders provide loans up to 50-60% of the property market value.
Repayment Capacity
The lender will be critical in checking the income statements, loans taken, history of repayment, etc. The idea behind it is to assess whether the person can repay the loan or not.
Comparison Between Personal Loan and Loan Against Property
Interest Rates Offered
The interest rate is one of the first things to consider while taking a loan. Since LAP is secured, the interest rates are lesser than the PL. On the other hand, PL turns out to be expensive and generally is provided at 11-24%. LAP can be obtained at a lower rate of 11-16%.
Processing Time
The time taken to process the PL is comparatively faster than LAP. The reason behind that is that the assessment process is quicker. LAP involves property evaluation and legal technicalities that can be time-consuming. So, a PL is a good option for someone looking for a quick loan. LAP may take many days and may not be suitable for urgent financial requirements.
Amount and Tenure
LAP is mainly available for a higher loan amount and longer tenures. Whereas the PL generally takes 5-6 years to be repaid and has an amount of 15-20 lacs. For LAP, the period can stretch up to 5-20 years. A PL is more about shorter tenure and higher instalments, whereas the LAP is vice versa.
Credit Score
Paying higher instalments in a shorter time frame in case of a PL will boost the credit score. The LAP is also a safe alternative as it involves property for security and is repaid in a long tenure. Both types of loans are most likely to boost the credit score on a positive front.
Conclusion
Both PL and LAP are standard loan services, with pros and cons. The loan availing depends on the factors like amount, urgency, requirements, etc. Before applying for any loan category, a person must examine their paying capacity. Whether a person is to apply for a loan against property or a personal loan, both have unfavourable effects in case of non-payment.
Hence, to keep credit scores healthy, estimate the paying capacity before pursuing a loan. Consider the above-mentioned factors and then take a call based on the financial needs and requirements.
19 June 2023
5 mins read
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