In the financial journey of life, understanding your loan options is pivotal. Whether it’s for buying a dream home,
funding an urgent need or making a significant investment, the choice between a Mortgage Loan and a Personal
Loan can be a crucial decision. Let's unravel the layers of these loan types, offering you clarity and direction
in your financial decisions.
Personal Loans
Personal Loans do not require collateral, making them unsecured loans. They are versatile, allowing you to use the
funds for various purposes, from consolidating debt to financing a wedding. Personal Loans are a go-to for
immediate, short-term financial needs, offering flexibility and quicker disbursements. However, the interest rates for Personal Loans are
typically higher than Mortgage interest rates due to their unsecured nature.
Mortgage Loans
On the other hand, lenders secure Mortgage Loans with collateral, usually property. The loan and mortgage difference
primarily lies in this security aspect. Mortgage Loans, often used for purchasing property, offer lower interest
rates compared to Personal Loan. They also have
longer repayment terms. The Loan Against Property interest rate is generally more favorable, making it a viable
option for long-term financial planning.
Difference between Personal and Mortgage Loans
When navigating the financial landscape, understanding the difference between Personal Loans and Mortgage Loans is
essential for making an informed decision:
| Aspect |
Personal Loan |
Mortgage Loan |
| Nature of the loan |
Unsecured, no collateral required. Accessible to a broad range of borrowers. |
Secured, with property as collateral. In case of default, the lender can take over
the property. |
| Loan amount |
Typically ₹50,000 to ₹40 lakh, varies based on income, repayment capacity and
lender's policy. |
Generally 60%-80% of a property's market value. Can amount to several crores for
high-value properties. |
| Repayment term |
1 to 5 years, extendable up to 7 years. Shorter terms lead to higher monthly
payments but less interest overall. |
Upto 30 years. A longer repayment period results in lower monthly payments but more
interest paid over time. |
| Interest rates |
10-24% p.a, depending on credit score, income, employment stability and lender's
policies. |
6.75-14% p.a., influenced by credit history, loan amount, property value and market
conditions. |
| Usage flexibility |
Highly flexible, can be used for debt consolidation, medical emergencies, home
renovation, education, vacations, etc. |
Primarily for real estate-related expenses like buying or constructing property,
refinancing, or Loan against Property. |
| Credit score impact |
Can impact credit scores. Well-managed loans can build a good credit history, but
large amounts can be risky. |
Consistent repayment improves credit score. Defaulting can have severe consequences
due to larger financial commitments. |
| Processing time and disbursement |
Processing time is short. Requires minimal documentation like ID, address and income
proof. |
Longer processing time, often a few weeks. Requires extensive documentation,
including property papers and legal checks. |
| Tax benefits |
No direct tax benefits unless used for specific purposes like home renovation or
construction. |
Significant tax benefits under Sections 80C and 24 of the Income Tax Act for
principal and interest repayment, respectively. |
Mortgage Loan vs Personal Loan: Which is Better?
Deciding between a Personal Loan and a Mortgage hinges on your financial needs and goals.
If you're looking to buy property or need a larger loan amount with a lower interest rate and longer repayment term,
a Mortgage Loan is often the better choice.
Conversely, a Personal Loan is more suitable for shorter-term financial needs without collateral or when you
require funds quickly. The key is to assess the difference between Personal Loans and Mortgages in terms of your
specific situation.
Also Read: Know all about
Personal Loans
How to get a Personal Loan or a Mortgage Loan?
Obtaining either a Personal Loan or a Mortgage Loan starts with assessing your financial health and requirements.
A Personal Loan involves checking your credit score, gathering necessary
documents like income proof, and approaching a lender. In contrast, for a Mortgage Loan, you'll need
property-related documents, a good credit score and a stable income. Lenders will evaluate your application
based on these factors, along with your repayment capacity.
Why are Personal Loan rates higher than a Mortgage?
The interest rates for a Personal Loan are typically higher than a Mortgage due to the increased risk to lenders.
Since Personal Loans are unsecured and do not require collateral, lenders charge higher rates to mitigate the
risk of default. In contrast, a Mortgage Loan is secured against property, reducing the risk for the lender.
This fundamental difference between a Personal Loan and a Mortgage is the primary reason for the variation in
interest rates.
Conclusion
Whether you opt for a Personal Loan or a Mortgage, understanding your needs and evaluating your options is key. Axis
Bank stands out with its customer-centric loan solutions. Be it Personal Loan offerings or Mortgage, you get
competitive rates, flexible repayment options, and a seamless application process. The bank ensures a
transparent and hassle-free experience, making it a reliable choice for all your loan needs.
Disclaimer: This article is for information purpose only. The views expressed in this
article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees.
Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability
incurred by the reader for taking any financial decisions based on the contents and information. Please
consult your financial advisor before making any financial decision.
