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Personal loan v/s home equity loan – Know the difference here

Finance

Personal loan v/s home equity loan – Know the difference here

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Are you in need of funds and considering taking a loan? Understanding your options and choosing the one that best suits your needs is essential. In India, two popular choices are personal loans and home equity loans.

So, let’s dive in and explore the world of personal loans and home equity loans!

 

Both these loan options have their advantages and serve different purposes.

Personal loan – Your flexible financial lifesaver

Banks and financial institutions offer unsecured loans called personal loans. It allows you to use the funds for any purpose you desire. Here’s what you need to know about personal loans:

Collateral: Personal loans are unsecured, which means you don’t have to provide any collateral or asset as security. This makes it an attractive option for individuals who don’t own any property or don’t want to risk their assets.

Loan amount: Personal loans usually have a lower loan amount than home equity loans. The loan amount is determined based on your income, credit history, and repayment capacity.

Interest rates: Personal loans generally have higher interest rates than home equity loans because they are unsecured. To get the best personal loan interest rate, it’s important to consider factors such as the lender, credit score, and other variables. Shopping around for different loan offers and comparing them can help you find the most favorable rate.

Repayment period: Personal loans usually have a shorter repayment period than home equity loans. The repayment tenure typically ranges from 1 to 7 years. However, some lenders may offer longer terms depending on the loan amount.

Home equity loan – Unlocking the value of your property

A home equity loan, also known as a mortgage or a second mortgage, allows you to borrow money against the value of your property. Here’s what you need to know about home equity loans:

Collateral: Home equity loans are secured loans that require you to pledge your property as collateral. The loan amount is determined based on the appraised value of your property and the outstanding amount on your primary mortgage.

Loan amount: Home equity loans generally offer higher loan amounts than personal loans. The loan amount you can receive is determined by taking into account various factors, including the value of your property, the amount of your current mortgage, and your ability to repay.

Interest rates: When you take out a home equity loan, the interest rate is usually lower than a personal loan because the lender considers it less risky since your property secures the loan. But remember that if you fail to make payments, you could lose your property.

Repayment period: Home equity loans generally have longer repayment periods than personal loans. The repayment tenure can range from 5 to 30 years, depending on the lender and the loan amount.

AspectPersonal loanHome equity loan
CollateralUnsecuredSecured (Property)
Loan amountLowerHigher
Interest ratesHigherLower
Repayment periodShorterLonger
PurposeFlexibleProperty-related
Risk of asset lossNoYes

To wrap up

Personal and home equity loans offer unique advantages based on your financial requirements. Make an informed choice and embark on your financial journey with confidence!

Todd R. Brain

Beeraholic. Zombie fan. Amateur web evangelist. Troublemaker. Travel practitioner. General coffee expert. What gets me going now is managing jump ropes in Africa. Had a brief career working with Magic 8-Balls in Libya. Garnered an industry award while analyzing banjos in Prescott, AZ. Had moderate success promoting action figures in Pensacola, FL. Prior to my current job I was merchandising fatback in the aftermarket. Practiced in the art of importing gravy for no pay.

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