Home Loans and Personal Loans are the two primary forms of loans available in the market with credit rationing, public utility, and strengthening of credit infrastructure being the prime objectives of both these forms of financial instruments. Thus moral suasion of public loans ensures strengthening of financial and economic infrastructure.
Loan Infrastructure of the country and the load-bearing capacity of the country is dependent on the quantum of reserves that the country's coffers possess in the form of foreign exchange reserves, money generated from tax barriers, and the taxes levied by the Central and State Governments over a considerable period. Recently Goods and Service Tax (GST) has also bolstered fund collection in the company's cash coffers thereby ensuring more income for the Government institutions.
Since these two forms of Governments and banking units in the country are responsible for undertaking the responsibility of developing finances for the people in the country. Thus when the people of our country are in financial distress and find their regular expenses difficult to meet, the banks jump into the scene and undertake the responsibility of providing the loan. Thus the loan disbursed to the public is in the form of Home Loan and Personal Loan. Following is a comparative analysis between Home Loan and Personal Loan-
Collateral Security
In the case of a Home Loan, collateral security is in the form of the house of the borrower which is kept with the bank. Under the default of payment of the installment and the interest amount, the borrower might lose the house and the banks would keep the house in its possession. Collateral Security refers to the quantum of assets that the borrower has to keep with the bank in the form of a security deposit.
However, when applying for a personal loan from the bank the interested borrower does not have to deposit any collateral security to the bank. The bank requires documents on part of the borrower like age proof certificates, income certificates verifying the capability of the user in repaying off the loan, and the other documents verifying the borrower's CIBIL score and verifying that the borrower would be able to pay off the loan and the interest for the loan in due time.
Purpose of Taking the Loan
The purpose of taking the loan is different in the case of personal and home loans. A personal loan is taken by the interested borrower for clearing off small debts in the market. It is also used to incur daily expenditures for which the borrowers require some amount of petty cash. These petty cash expenses help the borrower in resolving the crisis and also assists in creating a safe lending environment for the borrower.
On the other hand, the purpose of taking a home loan is to buy a house or a new flat which is either a furnished or a non-furnished accommodation for the borrower to either stay in or rent the place. Generally, Home Loans are granted by the banks only when the accommodation is not more than 10 to 15 years old.
Method of Calculation
Personal Loans are calculated with the instrument of finance called Personal Loan Calculator. Personal Loan Calculator refers to the instrument that is used in calculating the amount of interest payable on an amount of the loan. The monthly installment amount is also calculated by inputting the loan tenure, loan amount, and the other variables in the personal loan calculator.
For example- Vijaya Bank Personal Loan Facility is granted only after proper calculation of the interest amount through the use of a Personal Loan Calculator. On the other hand, no such instrument is used for the calculation of home loans as collateral security is deposited. However, a percentage of the collateral is calculated in value and that same value of the monetary loan is provided to the borrower.
Conclusion
Thus both Home Loans and Personal Loans form the backbone of the financing infrastructure in our country where finances are adequately short and quick redressal of loans are necessary.
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