Loan vs Mortgage – What is the Difference & Comparison?
India has a significant market for short-term, unsecured financing. Studies show that the demand for such credit has risen considerably in the last few years; the data showed the total debt amount at around Rs. 20 Lakh Crore, which is a substantial increase from Rs. 6 Lakh crore in the last decade.
Both secured and unsecured loans are offered by lending institutions at affordable interest rates and minimum documentation, making it easier for a borrower to avail the benefits of such credit schemes.
However, the type of credit (whether mortgage or unsecured advance) one needs to avail usually depend on their unique financial requirements. Short-term unsecured credits are ideal for emergency financial requirements, while long-term secured advances are ideal for large scale expenditures.
It is necessary for every borrower to understand the difference between mortgage vs loan before applying for the same. Let’s take a look at a detailed comparison of the same.
How Loan Differs From Mortgage?
Loans are primarily classified as secured and unsecured, wherein the latter does not require a collateral mortgaged to a lender.
On the other hand, mortgage loan necessitates pledging an asset, usually land plot or house as mortgage with the lending institution.
In case of an unsecured loan, the borrower has to undergo extensive documentation process for the loan. The lender also ensures that the borrower can repay the amount later based on his/her income and credit history.
Moreover, depending on the credit history of the borrower, the lender might ease the eligibility and charges for your loan against property.
Although loans can be both secured and unsecured, mortgages can be specifically classified into two broad categories namely:
- Home Loan
These loans have end usage restrictions and are borrowed strictly for buying a new property. Various lenders offer home loans at affordable interest rates. The total disbursed sum can reach a considerable amount, provided the property’s value and borrower’s credit history supports the payment.
- Loan Against Property
Loan against property are secured credit that is disbursed against any mortgage property, including plots of land and commercial properties. These credits do not come with any end usage restrictions. Most lenders offer loans against property for both salaried and self-employed individuals. They can also avail a flexible tenor owing to a good credit score and decent repayment history of previous loans.
Comparison Between Loan & Mortgage
Both unsecured and secured loans are types of advances offered by financial institutions. Certain terminologies are used in both cases of unsecured loans like personal loans and secured advances like a loan against property which are explained below –
- Rate of Interest:
The lender charges a specific rate of interest from the borrower as a percentage of the loan amount availed. The creditor is likely to receive the interest amount when you start repaying the loan amount. The interest rates of secured and unsecured credits usually vary by a significant margin. Secured loans attract a lower rate, as the risk associated with lending is lower in this case.
- Principal Amount:
Another primary difference between mortgage vs loan is the difference in the disbursed sum. Mortgage loan offer a significantly larger sum as the money is disbursed against the value of the property kept as collateral.
Paying off the outstanding loan amount before the specified tenor is possible in both cases. It offers a beneficial approach from the borrower’s side as it eases the financial burden of repaying the amount for a longer period of time.
Borrowers can determine the ideal tenor of a loan against property and prepay the due amount when the interest and principal component is balanced.
Both types of loans are sources of finance for individuals who are looking for monetary assistance.
With the differences in the features and facilities that these advances come with, it is advisable for individuals to assess things before applying for a loan against property.