How To Decide Between a Personal Loan and Loan Against Property?

Suppose you are the owner of a small property. Now you have been managing your finances well till now. But recently, you came across an opportunity to invest in a small business that has great potential. Now you don’t have surplus money to put in the business. But you also don’t want to pass up this opportunity.

So what will you do?

The first thing would be to borrow from friends and family. But its possible that they themselves might be tied up with their own set of expenses and might not be of much help. So the next option is to take a loan. You are thinking of applying for a personal loan. But your friend suggests that you go for a loan against property.

So how do you decide?

There are few factors that you should consider before deciding.

The best part about loan against properties is that the rate of interest is much lower than personal loans (between 12% to 15%). These loans also have a longer repayment period.

Next important factor is the amount of money required. If you require more than Rs 25 lacs, then personal loans might not help as these are generally given for smaller ticket sizes due to unsecured nature. In such cases, going for a loan against property is your only option.

A very big factor in such decisions is the urgency of requirement. Personal loans are processed quickly and disbursed within few days. On the other hand, loan against property requires the applicant to provide all documentary proofs and approvals. The processing time is typically longer as lender needs to physically verify the property. So if you need money urgently, you need to go in for personal loans.

Also, the personal loans are offered for a period of less than 5 years. Loan against property on other hand can be taken for upto 10 to 15 years.

So before you decide which one to choose, make sure that you have assessed your money requirement carefully.