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Property or Personal? How to Determine Which Loan is Best for Your Situation

Property or Personal? How to Determine Which Loan is Best for Your Situation

Loan

A loan against property is exactly what the name implies: a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property’s market value. However, loans against property are where you collect the money from the bank by mortgaging your property. Your property acts as a security deposit for the money that is rendered by the bank and until the repayment of the loan money, the borrower’s original loan documents of the property will be under the banks’ custody. In case the people fail to pay the monthly installments, banks will follow the legal procedures required to own the loan property.

The loan will usually be approved by banks up to 40% – 60% of the property value, but some banks might even approve loans up to 70% of the property value. Just like any personal loan, there is no restriction on using the proceeds of a loan against property.

How to choose?

  • Processing time: Whenever we opt for this type of loan, which is obtained by mortgaging the borrower’s property, then the lender needs to verify the documents before disbursing the loan. In addition to this, you will be asked to submit documents supporting your income to judge your loan repayment capacity.
  • Interest rates: Being a secured loan, the interest rates of commercial mortgage lender options are usually lower than other loans. This can be anywhere between 11% and 16%. In comparison, the interest rates of any personal loan can be as high as 24%. The main factor determining the interest rates in personal loans is the borrower’s credit score.
  • Tenure of the loan: The loan tenure can be up to 15 years whereas the upper limit of a personal loan is usually around 5 years. The more tenure you have to repay your loan, the lower the EMI payments, thereby increasing its affordability. However, the flip side is that the longer tenure would also result in a higher interest payout.
  • Loan amount: In the case of personal loans, your loan amount will primarily depend on your monthly income and your ability to service the loan. However, whenever you opt for a loan that is against your property, the loan amount will depend on both the market value of your property and your income. Generally, the amount in this type of loan ranges between 40–70% of the market value of the property, but the maximum loan amount can be much higher when compared to personal loans.
  • Although taking a loan against your property is a better option than a personal loan in terms of interest rate, loan tenure, and loan amount, it falls short in terms of processing time. Therefore, for people requiring funds at short notice, a personal loan will be the only option. Also, the biggest risk associated with this type of loan is that the lender can confiscate your property in the event of your default in paying your dues. Therefore, make sure to self-evaluate your repayment capacity before opting for a loan against a property. There are different commercial mortgage lender options that you can opt for.
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