When people need immediate money for Personal use, they usually go in for a personal Loan. But do you know that you could also go in for Loan Against Property. Both loans have their advantages and disadvantages. Here we are going to tell you the differences between the two which will help you make a better decision on which loan to go in for.
What is a personal loan – A Personal Loan is an unsecured loan which you can get from your bank for personal use. Since there is no restriction as such on the amount can be used for personal use such as paying off the debt, construction of the house or setting up your business or even a wedding.
Loan Against Property – Loan Against Property or LAP is a secured loan which is disbursed against the mortgage of the borrower’s property. The property which can be mortgaged can either be commercial or residential. LAP is quite similar to a personal loan as far as restriction of the loan amount is concerned; there is no restriction.
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Now comes the question of how to choose between the two, here we are going to tell you how to do it.
We are going to differentiate between the two on the following grounds – Processing time, Interest rates, tenure of loan and loan amount.
Processing time – Since there is a lot involved in LAP, the processing time usually takes around 15-20 days to get disbursed, so it is not advisable that people should opt for LAP if they want immediate loan. Whereas, personal loans can be processed within a week, hence if you are in need of emergency fund, then you should go in for a personal loan.
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Interest rate – Since LAP is a secured loan, the interest rate is usually lower than a personal loan. It can range from anything between 11% – 16%. But if we compare the interest of a personal loan then it goes up to 24%. It can be lower as well but then it depends on the borrower’s credit score. LAP is best suited for those who are unable to get a personal loan due to bad credit or some other factor.
Tenure of the loan – Again for LAP the upper limit is 15 years for repayment, while for personal loan is five years. You might think that since the tenure is longer it will save you money, as the EMI will go down, but what you might not realise is that your interest payout will be much higher.
Loan amount – The loan amount in case of your personal loan will depend on your income. However, in case of LAP the loan amount will depend both on the market value of your property and also your income. The loan amount in LAP can be 40% – 70% of the market value of your property and the limit can be in crores. However, in a personal loan the amount is usually around 12 – 20 lakhs.
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