Personal Loan Vs LAP | Personal Loan Vs Loan Against Property: Which Is Better, Understand In Simple Language

The problem of lack of money can be faced at any time and the best way to solve it is to take a loan. There are many boring products available in the market, the difficulty comes in choosing the right one among them. Personal loans are one of the most popular credit solutions to meet sudden cash crunch. Other options like Loan Against Property or Loan Against Securities (Mutual Funds, Fixed Deposits, Insurance etc.) or Loan Against Gold are also available but these are not as popular as personal loans as personal loans are easy to get and its processing is also very easy. is. But, when you go to the market for borrowing, it would be wise to consider all the available options and then decide according to your financial needs and repayment capacity. In this article, we will consider a personal loan as well as compare it with various aspects of Loan Against Property (LAP) loan options.

What is the meaning of loan against property and personal loan?

Loan Against Property is a secured loan that can be taken against a property (both residential and commercial) that you own and the amount borrowed can be used for both personal and business purposes. The financial facility can be used for home renovation, children’s education and marriage, medical emergencies and other similar reasons. Whereas a personal loan is an unsecured loan that can be taken from a bank or a non-banking finance company (NBFC) to address your immediate financial crunch. You are not required to pledge any security like property or gold but the lending institutions will consider your income, credit score, and repayment capacity while granting you the loan.

Compare Loan Against Property with Personal Loan on Different Parameters

Loan Amount: You can take a personal loan up to Rs 40 lakh. The loan amount is considered based on the borrower’s income, credit score and repayment capacity. In Loan Against Property, the loan amount is sanctioned after the valuation of the property. Generally, most banks sanction loans up to 70% of the valuation of the property. So, if you need a large loan amount, this can be an easy way to get a lump sum amount. For example, a government bank provides a loan of a minimum amount of Rs 10 lakh and a maximum of Rs 7.5 crore, depending on the location of the property.

Rate of interest: In any loan, the interest rate plays an important role in deciding the Equated Monthly Installment (EMI) outgo. Though personal loans are easy to obtain, they are unsecured and hence charge higher interest rates as compared to secured loans. The interest rate on personal loan can be up to 24%. In LAP, the interest rate is lower than that of a personal loan, as it is a secured loan and the property is mortgaged for the loan. Borrowers can also take this loan at a floating interest rate and avail the benefits of falling interest rates.

It is important to note here that the interest rate applicable on both the loans depends on income, credit score, loan amount and repayment capacity.

Loan Tenure: LAPs are granted for a comparatively longer tenure as compared to personal loans. Banks allow a tenure of up to 15 years to the LAP borrower, depending on age, income, and repayment capacity. It is important to note that longer tenure reduces EMI, leaving more income available with the borrower to spend or use. On the other hand, the tenure of a personal loan is usually of 5 years.

Processing Time: Generally, a personal loan requires very few documents or no documents at all, making it possible for faster processing and loan disbursal. This can happen even faster if your loan is pre-approved. In case of LAP, the processing time is longer as the property appraisal is done by the financial institution and necessary due diligence is done before granting the loan.

Prepayment Charges: Prepayment facility is available for both the credit options. In case of floating interest rate, you do not have to pay any prepayment charges for LAP. In case of fixed interest rate LAP, the prepayment charges levied vary in case of two different lenders. On the other hand, for personal loans, you have to pay up to 5% of the amount as prepayment or foreclosure charges.

Also, in both the loan options, top up facility is provided on the existing loan. Your loan option will depend on the loan amount, interest rate and processing time. If you are eligible for both the loan options and are not sure which one to choose, the table below will help you make a right decision.

This table compares the interest rates and indicative EMIs on Loan Against Property and Personal Loans offered by 15 banks for a loan of Rs 10 Lakh. In this the loan tenure is taken up to 5 years.Disclaimer: Data compiled by BankBazaar.com from the website of the respective bank as on June 17, 2021. For the purpose of data compilation, interest rates on personal loans and loans against property have been taken for all listed (BSE) public and private banks (except small finance banks). Banks whose data is not available/insufficient on their website have not been considered. The list only considers the minimum interest rate shown on the bank’s website for specific loan types. Top 15 banks with lowest interest rates on personal loans are included in the list. Banks are listed in ascending order on the basis of personal loan interest rate i.e. the bank offering the lowest personal loan interest rate is placed at the top and bottom. The EMI is calculated based on the interest rate given in the table for a loan of Rs 10 lakh with a tenure of 5 years. (Process and other charges are considered as NIL for EMI calculation); The interest and charges mentioned in the list are indicative and may vary depending on the terms and conditions of the bank. * Rack interest rate.

(The author of this article is Adil Shetty, CEO, BankBazaar.com)
(Disclaimer: This information is being given on the basis of expert reports. Markets are subject to risks, so take your own advice before investing.) (This article is written for informational purposes only. It is for investment purposes only.) should not be construed as financial or other advice)