Personal Loan vs. Loan against Property – Which is the Best?

We often find ourselves in situations where we may need money instantly for either setting up or expanding a business, paying high education fees for children or meeting wedding expenses. At such times, we tend to explore the options of either a personal loan or a loan against property. Instead of making a decision in haste, it is better to give much consideration and understanding to the crucial factors involved in the process.

What is LAP?

As the name itself suggests, a Loan against property (LAP) is a loan disbursed against any collateral over a commercial or residential property. It is a secured loan sanctioned against an immovable asset such as your property. Going for a loan against plot boosts your possibility of securing a higher loan amount than a personal loan. You can apply for a loan against property online which makes the entire process hassle-free with minimal documentation.

What is a Personal Loan?

A personal loan on the contrary refers to an unsecured loan that is disbursed by the bank without any mortgage of the property as security or any collateral. People usually go for personal loans for lesser financial requirements in comparison to LAP.

Here are some comparisons of the key parameters about getting a personal loan against property vs. a personal loan.

Features of LAP

• Interest rate

The mortgage loan rate is usually offered between 8-22 percent per annum. This interest charged is lower in comparison to that of a personal loan because you are using your property as collateral. Secured loans usually attract lower interest rates. Moreover, when you avail of a loan against a property online, you can choose from either fixed or floating interest rates. If you are applying for a loan against a property online, then you can as well as an EMI calculator for a loan against property to estimate the EMI applicable to you.

• Loan tenure and amount

Although you can opt for a loan against property online for small amounts, you need to go for it if you are looking for a higher loan amount. The repayment tenure of a mortgage loan is usually between 5-15 years. Moreover, as LAP is secured against a physical asset, the loan amount sanctioned would be 40-70 percent of the property being used as collateral.

• Processing fee

In the case of a loan against property, the processing fee charged varies from 0.5-1.5 percent of the loan amount. You can check the processing charges of a loan against a property online from the lender site.

• Time for loan processing

If you are looking for a loan against property Mumbai, the approval time is longer due to the diligence procedures involved in the process. Verification of property-related documents and other formalities consumes a lot of time. It would take about a fortnight for the entire procedure. However, if you apply for a loan against property online, the process will be initiated at a quicker pace.

Features of personal loan

• Interest rate

A personal loan attracts an interest rate in the range 11-40 percent per annum. As personal loans are unsecured, they attract a high rate of interest. Moreover, the interest rate also depends on your credit score and your earning potential.

• Loan tenure and amount

A personal loan on the other hand lasts for 5 years thereby making it a preferred choice for lower loan amounts. The maximum disbursed amount under personal loans is usually lower and doesn’t exceed 25 lacs and depends majorly on the income.

• Processing fee

For a personal loan, the value varies from 1.5 percent to 2.5 percent.

• Time for loan processing

A personal loan requires far less documentation and procedures and is usually approved almost instantly. All the lender does is evaluating your credit score and monthly income to provide approval. You can have funds with you within a week.

Why LAP is a better option?

The greatest benefit of opting for a loan against property is that you can avail a loan on it while continuing to enjoy the ownership at the same time. It allows you to tap into the locked-up value in the property you hold. The borrowers can utilize the money for various personal as well as for commercial purposes such as meeting sudden medical expenditure or setting up a new venture. You can avail loan against property online easily by furnishing all the relevant information as requested by the vendor.

A loan against property online is currently in high demand as you can avail a large sum which amounts to about 70 percent of the property value. Also, there is flexibility over the payments and the interest rate is much lower in comparison to a personal loan. As the repayment tenure is long, the EMIs charged are significantly lower. Furthermore, tax benefits can also be availed on the interest amount for a loan against property, which is not possible in the case of a personal loan.

In Summary

While both personal loans and a mortgage loan against vacant land or property come with their own set of advantages and disadvantages, the applicant can decide which one to opt for on the basis of convenience, the interest rate on offer, the amount sought, and also on the processing time. You can opt for a loan against a property online depending on the quantum of finance you require. Assess your needs before applying for a loan against property online.