Comparing Personal Loan with Loan Against Property (LAP)
Many situations arise in life that your current cash level might not be able to finance. These include the higher education of your children, wedding in the family, business expansion, etc. In such cases, taking a bank loan is the most sensible way to meet your financial requirements.
The two most sought-after credit options are Loans against Property and Personal Loans.
Let’s get into the details of these loans to find out which is most suited for you.
What are Loans Against Property and Personal Loans?
As the name suggests, a LAP loan is disbursed against the security of immovable property. The property used as collateral can be a residential or commercial plot.
On the other hand, a personal loan is an unsecured loan disbursed without any collateral. The borrowers generally take personal loans to meet their short-term financial requirements.
Critical Differences Between Loan Against Property and Personal Loan
- Quantum of Loan and Tenure
A loan against property is usually taken for higher financial needs. The loan amount can be sanctioned up to 40% to 70% of the property used as collateral. It has a long repayment tenure of 5 -15 years.
On the other hand, the capping of personal loans ranges from 15 to 20 lacs with tenure up to 5 years. This makes it suitable for lesser and quicker loan amounts.
2. Equated Monthly Instalment
A higher rate of interest and a lower tenure result in a higher EMI. So naturally, the EMI of a personal loan is higher than a LAP loan.
3. Processing Time
Since no collateral is required for a personal loan, it does not take much time to process. After checking your income and credit score, the lender can process your application in as little as a week.
For a loan against property, the lender will have to verify all property-related documents before disbursing the loan. You can expect the processing to take between 15 to 30 days.
4. Rate of Interest
The first thing a borrower considers while availing loan is the interest rate. Being a secured loan, the interest rate in a LAP loan is much lower than a personal loan. Loan Against Property interest rates range from 11% to 16%, whereas the interest rate on a personal loan can be as high as 11% -24%.
5. Loan Repayment
Untimely, the non-payment of personal loans will result in an increased interest rate and a reduced credit score. The non-payment of a LAP loan has much higher ramifications. You could stand to lose the property used as collateral.
Which Option Should You Choose?
Both types of loans, a personal loan and a LAP, have their benefits and drawbacks. The Loan Against Property interest rate is lower, but the processing time is higher. If you are in urgent requirement of short-term funds, a personal loan might be the best option for you. For a long-term loan of a larger amount, a loan against property is a better option.