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PERSONAL LOAN V/S LOAN AGAINST PROPERTY

  • 19 Sep, 2019
  • |
  • Team Credit Karo

PERSONAL LOAN V/S LOAN AGAINST PROPERTY

A fast-growing economy, growing expenses, and forever limited budget forces us millennials to take personal loans from the banks for limited period so that we can make those big expenses once in a while when it becomes of absolute necessity. It could be a marriage in the house or expansion of your small business, raw materials for business, heavy machinery etc. Personal loans have become a trend for the middle-class as it seems more feasible than other orthodox methods.

In the recent times the demand for loan against property has seen a noticeable rise, people are now mortgaging their property to avail a loan for a longer term. Now the question that confuses the common man is which type of loan is more profitable and secure? Is personal loan better than LAP? Is LAP more unsecure?

Is LAP more successful in the longer run? We took matters into our hands in pursuit of finding these answers. We did the comparison on basis of the factors that will have an impact on your choice.

First, let’s discuss what exactly differentiates the two:

PERSONAL LOAN:

Personal loan is an unsecured loan which can be availed from the bank for personal use. You generally use the loan amount for personal expenses like, construction of your house, raw materials, machinery, marriage, a business set-up etc.

LOAN AGAINST PROPERTY (LAP)

Loan against property is a secured loan that can be availed against mortgage of the borrower’s property. It can be a residential property which is either self-occupied or rented, commercial property or a piece of land. You can use this loan amount to meet any personal expenses just like a personal loan.

Now let’s discuss some pointers to know which one is better:

PROCESSING TIME

Personal loan is a better option for those people who are looking for a quick disbursal as banks will demand your monthly income, check your credit score and ask for basic documents for identity proof and will approve the loan within 7 days to a fortnight, sometimes less than that.

Loan against property is a good option for those who do not have a time constraint but want a large amount for a longer term. It requires the borrower to mortgage his/her property against the loan which may take a longer time as the borrower has to prove the ownership of the property and its market value. The borrower will also have to submit income and identity proof. This procedure may a take a fortnight to one month.

INTEREST RATES

Another major factor is the interest rate levied on the both types. Personal loan is an unsecured type of loan due to which the interest rate is usually much higher than LAP. This is an option for those people who have a deadline and want a quick disbursal.

Loan against property, on the other hand is a secured loan against mortgaged property so banks cut you some slack by lowering the interest rates, much lower than personal loans. This is an option for those people who do not want to bear a high interest rate on their shoulders.

 LOAN TENURE

Loan tenure is also a major difference between the two, Personal loan tenures may go up to 5 years, while in case Loan against property, the tenure can go up to 15 years. People who do not want to extend their EMIs for too long will opt for personal loans and the people who want a bigger loan amount for a longer tenure will obviously opt for LAP.

LOAN AMOUNT

Personal loans are taken for a shorter time period; therefore, the loan amount is usually lower than LAP, most banks and financial institutions provide a cap of 15-20 lakhs in case of personal loans while Loan against property can go up to 2-3 crores which is a major difference.

EMIs

EMIs in both cases will have significant difference. In case of personal loan, the interest rate is high, and the duration is short due to which the EMIs are automatically high while loan against property usually have a longer tenure so the EMIs are lower.

Both personal loan and loan against property have their own pros and cons of their own, it depends on the need and preference of the borrower. We cannot choose one out of the two because it is case sensitive. We hope we made it easier for you to understand the basic differences of the two types. If you want to check out some personal loans and loan against property plans, click here. Keep coming back to us for more such interesting content and tell us what else you would want us to write about.

Till then….happy buying!

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