Difference Between Personal Loan vs Mortgage Loan

Being clear about the features of a mortgage loan vs personal loan can transform your credit experience. It boils down to attaching an asset as security for the amount you plan to borrow, which can have far-reaching consequences on your future financial health. 

You can make a better decision by learning about how this can affect factors such as:

• Your credit score
• Borrowing costs and repayment ease 
• Disbursal timeline
• Asset risk 

To understand the features of a personal loan vs mortgage loan, read on. 

Understanding Personal Loans

This is a collateral-free credit facility through which you can get funds without attaching any asset (such as a bike, car or home) as security. Thus, approval hinges on:

• Your creditworthiness 
• Earning and income 
• Meeting the lender’s eligibility terms

You get funds based on your repayment capacity and borrowing history. You can use the amount without any end-use restrictions and for any purpose, such as:

• Medical emergencies
• Home renovation
• Travelling
• Debt consolidation
• Purchasing a vehicle

Personal loans offer the following benefits:

• Quick Approval: Lenders approve personal loan applications and disburse the funds faster to manage time-sensitive needs
• No Risk to Assets: Since these are unsecured loans, you don’t need to provide any collateral as security and risk your asset
• No Restriction on Usage: You have the benefit of using the funds for any planned or unplanned expenses as per your requirements

Understanding Mortgage Loans

This is a secured loan where the property you own acts as the security or collateral. This gives the financial company the right to sell the asset to recover the debt in case you don’t or can’t repay it in full. This is the main difference when it comes to choosing a mortgage vs a loan. 

The amount you can access as financing is dependent on the property you pledge:

• Upkeep and maintenance
• Location 
• Amenities 

In general, you can use this loan to buy another property, construct a home or for other purposes such as financing a wedding. You enjoy these benefits with a mortgage loan:

• Extended Repayment Tenure: The repayment tenure is longer so you can repay conveniently
• Lower Interest: The interest rate is lower as the lender has collateral, which overall lowers the risk
• Investment: Since property values keep rising gradually, buying property with this loan may be a good investment

Differences Between Mortgage and Personal Loans

Here is a tabular overview of the differences between these two options:

Basis of Differences	Mortgage Loan	Personal Loan
Loan Amount	Higher loan amounts based on property value	Lower to moderate amounts based on repayment capacity
Collateral	Property serves as collateral	No collateral needed
Interest Rates	Lower interest rates as the lending risk is low	Comparatively higher interest rates as the lending risk is high
Loan Tenure	Longer tenure, typically 15-30 years	Short to medium tenure, typically 1-5 years
Processing Time	Longer processing time as there’s extensive verification	Shorter processing time as there is no extensive verification
Credit Score	Less critical to approval	More critical to approval

Mortgage Loan vs Personal Loan: Which is Better? 

Choosing between a personal loan and a mortgage depends on your unique financial goals and requirements.

• If you need a larger loan with lower interest rates and longer repayment terms, a mortgage loan is typically the ideal option. For example, a mortgage is often used to buy a house, offering extended repayment periods. 
• A personal loan works best for short-term needs and you can typically get it without the need for collateral. For instance, a personal loan can help finance home renovations.

How to Get a Personal Loan or a Mortgage Loan? 

Due to advances in technology, you can explore lenders and apply for either online or offline options. Here are the general steps involved in getting a personal loan or a mortgage.

• Check your credit score and decide on a loan amount
• Research lenders and compare interest rates, repayment terms and eligibility criteria
• Gather required documents, including proofs of income, identity and address
• Choose a lender and submit your application either online or in person
• The lender will approve the application after assessing your credit score, financial history and more

Why are Personal Loan Rates Higher than a Mortgage?

Personal loans generally come with higher interest rates because they are unsecured, meaning there’s no collateral to back the loan. Since lenders face more risk with unsecured loans, they charge higher rates.

On the other hand, mortgage loans are secured by property, meaning the lender can claim the property if the borrower defaults. Since the lender’s risk is lower, mortgage loans typically have lower interest rates. This is why interest rates differ between personal loans and mortgage loans.

On the other hand. mortgage loans are secured by property, meaning the lender can claim the property if the borrower defaults. Since the lender’s risk is lower, mortgage loans typically have lower interest rates. This is why interest rates differ between personal loans and mortgage loans. 

Important Points to Consider

Here are some important points to note while assessing mortgage vs personal loans:

• Personal loans can be ideal for short-term requirements due to shorter tenure.
• Funding from a mortgage can come with end-use restrictions as the funding is generally used for real estate purposes.
• Your credit score is crucial in personal loans but not as important in mortgages.
• Your asset is at risk in a mortgage loan as the lender can seize it in case of default.
• Personal loans are available more quickly than mortgages, making them ideal for urgent requirements.
• Mortgages come with longer tenures, making them ideal for long-term needs.

If a personal loan is more suitable for your needs, consider getting Fibe’s Instant Cash Loan. You can get up to ₹5 lakhs at affordable rates and enjoy benefits like minimal documentation, zero processing charges, etc. Download the Personal Loan App or register on our website to apply!

FAQs on Mortgage Loan Vs Personal Loan

Which is better mortgage loan or a personal loan?

Deciding between personal loans and mortgages requires a thorough assessment of several factors. Some of these are: 

• Purpose of the loan
• Availability of security
• Tenure and cost

Is a CIBIL score needed for a mortgage loan?

While all financial companies check your credit score no matter which credit facility you choose, the importance given to it differs from lender to lender. Check the terms of the financial institution before you apply.