Being clear about the difference between a loan and a mortgage can completely transform your experience with credit. 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:
To understand the features of a personal loan vs mortgage loan, read on.
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:
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:
Personal loans offer the following benefits:
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 loan.
The amount you can access as financing is dependent on the property you pledge:
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:
Here is a tabular overview of the differences between these two options:
|Basis of Differences
|Higher loan amounts based on property value
|Lower to moderate amounts based on repayment capacity
|Property serving as collateral
|No collateral needed
|Lower interest rates as the lending risk is low
|Comparatively higher interest rates as the lending risk is high
|Longer tenure, typically 15-30 years
|Short to medium tenure, typically 1-5 years
|Longer processing time as there’s extensive verification
|Shorter processing time as there is no extensive verification
|May be required in some cases
|Required in most cases
Here are some important points to note while assessing mortgage vs loan:
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Deciding the ideal option between personal loans and mortgages requires a thorough assessment of several factors. Some of these are:
While a mortgage is a secured loan where you pledge your property as collateral, a loan can be either secured or unsecured.
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.