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Personal Loan Vs. Mortgage - Know the Differences to Make Informed Borrowing Decisions

Published on Dec 27, 2024Updated on Dec 28, 2024

Personal Loan Vs. Mortgage - Know the Differences to Make Informed Borrowing Decisions

Choosing between an instant* personal loan and a mortgage (or a Loan Against Property) can be confusing when planning big-ticket purchases. While both options provide convenient access to funds, they differ significantly in structure, repayment terms, and eligibility.

A personal loan is an unsecured option, known for quick approvals and disbursements, making it ideal for immediate financial needs. On the other hand, a mortgage is secured against property, offering higher loan amounts and lower interest rates.

By understanding these differences, you can make an informed choice tailored to your financial goals. In this article, we’ll break down both options to help you decide which one suits you best.

Understanding Personal Loan vs. Mortgage Differences

A personal loan is typically unsecured, meaning it doesn’t require collateral. It is ideal for short-term or urgent needs, making it a viable option when considering a personal loan vs. a mortgage for renovations or emergencies. Personal loans also typically require minimal documentation, which further speeds up the approval process. However, they often come with higher interest rates and shorter repayment tenures compared to mortgages.

In contrast, a mortgage is a secured loan, requiring you to pledge your property as collateral. The reduced risk for lenders allows access to larger loan amounts and lower interest rates, but the approval process can take longer due to property evaluations. The application process may also be slightly longer as you need to provide property-related documents. Mortgages are better suited for substantial expenses and long-term financial commitments, such as property investments.

Should You Choose a Personal Loan or Mortgage for a Home Purchase?

If you are buying a property, a mortgage is the most practical option because it allows you to borrow a significant amount over a longer tenure. The collateral-backed nature of the loan ensures lower interest rates than a personal loan and manageable EMIs, making it ideal for substantial investments like property purchases.

In contrast, a personal loan is more suitable for covering home expenses such as furnishing, minor upgrades, or unexpected repairs. One of its biggest personal loan benefits over a mortgage is that it can provide quicker access to funds in times of need.

How to Choose between Personal Loan or Mortgage?

Assessing the following factors can help you choose between personal loans and mortgages:

Purpose of the Loan: A mortgage is generally ideal for significant expenses, such as property purchases or large-scale renovations. On the other hand, a personal loan is better suited for short-term or diverse financial needs, offering greater flexibility.

Loan Amount: Mortgages typically offer higher borrowing limits, whereas personal loans are usually better suited for smaller amounts, typically up to INR 30 lakhs.

Repayment Tenure: If you prefer a shorter commitment, a personal loan is the way to go. Mortgages, on the other hand, are designed for long-term repayment plans, often up to 15 years.

Speed of Disbursement: Personal loans typically have quicker processing times, providing faster access to funds. Mortgages, however, involve collateral evaluation, which often makes them take longer to process.

Mortgage Eligibility vs. Personal Loan Eligibility

When it comes to eligibility, personal loans and mortgages differ significantly in terms of their requirements.

Personal loans generally have straightforward eligibility criteria but often require a higher credit score compared to mortgages. Since personal loans are unsecured, lenders focus on factors such as your income, credit score, employment history, and repayment capacity. 

Mortgages, being secured loans, may involve a more intricate approval process. While the general eligibility requirements include factors similar to personal loans, such as income, age, and credit score, lenders also assess the value of the property being pledged as collateral. The property value helps determine the loan-to-value (LTV) ratio, which is critical in deciding the loan amount you may qualify for. Additionally, the property’s location, condition, and legal standing play a significant role in mortgage eligibility, as they affect the lender’s risk.

Conclusion

Choosing between a personal loan and a mortgage depends on your financial needs, loan amount, and repayment preferences. It’s essential to understand the specifics of both options to make an informed decision about which is better for you: a personal loan or a mortgage.

At SMFG India Credit, we offer both personal loans and Loans Against Property to eligible applicants, with transparent processing and competitive interest rates. Both funding options provide the flexibility to use the funds according to your needs. Check out the respective eligibility criteria and apply online today! If you're unsure about which loan option is the best fit for you, feel free to reach out to us for assistance.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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