At some point in life, many of us face a situation where we may need funds immediately for emergency expenses like business expansion, paying medical bills, children’s education, home repairs, etc. In such a situation, you can either break your years of hard-earned savings or you may have to avail of a loan.
Among the different types of loans, two of the most popular options are personal loan and loan against property or LAP. Today, many lenders in India offer both forms of credit. However, how do you choose the right one? In this blog, we discuss the difference between LAP and personal loan based on different parameters.
What is Loan Against Property?
Loan against property or LAP is a type of secured loan wherein you avail the funds by pledging property as collateral against the amount you borrow. The property can be a commercial or residential building or a plot.
What is a Personal Loan?
A personal loan is an unsecured credit that you can avail from any public or private institution of your choice for personal use. You can use the funds for any purpose you want.
Personal loan vs Loan Against Property – Knowing the difference
When you avail of any kind of loan, you may invariably consider the interest rate before making the final borrowing decision, right? Since LAP is a secured loan, lenders usually offer this loan at a lower interest rate, starting from 10.50% per annum.
In contrast, a personal loan is an unsecured loan, and since there is no security or collateral involved, the interest rate for such loans is higher than LAP. The personal loan interest rate may vary from one lender to another, but it is generally in the range of 10.50% to 24%.
Amount of loan
One of the important differences between LAP and a personal loan is the maximum amount you can borrow. In LAP, you can borrow between 40% to 70% of the value of the property you pledge. If you are in need of a high-value loan, then LAP is an excellent option.
As for a personal loan, the lender will determine the maximum amount you can borrow based on different factors like income, credit score, age, profession, etc.
Loan repayment duration
In the LAP vs personal loan battle, LAP has an edge as you can avail loan against property for a longer tenure. Typically, most lenders in India offer LAP for a maximum period of 15 years. Thus, LAP allows you to avail a higher amount and repay the same over an extended period.
The repayment duration for a personal loan is much shorter than for a loan against property. Most lenders offer personal loans for a maximum period of five years. However, some lenders like Tata Capital, one of the leading private lenders in India, offer personal loans for up to six years.
Loan processing time
As mentioned earlier, LAP is a secured loan that you avail against a property. So, the approval process for such loans is longer than for personal loans. The lenders verify the value of the property and its related documents before approving the loan. This may take a few days. However, some lenders sanction the loan within 2-3 days.
The processing time for personal loans is much faster than LAP. Since it is an unsecured loan, the documentation is minimal, and some lenders offer same-day approval
Non-payment of loan
If you fail to repay the loan against property, then the lender may auction it off to recover the outstanding amount. Hence, you must have a good repayment plan before you apply for this type of loan.
In the case of a personal loan, if you fail to repay the amount, then your credit score will go down significantly. Also, you may have to pay late payment charges or increased interest rates.
Let us do a quick recap of the differences between LAP and personal loan
|Loan Against Property
|Comparatively less than personal loans, starting from 10.50%.
|Comparatively higher than LAP ranging from 10.50% to 24%.
|Maximum loan amount
|Depends on the value of the property. You can avail up to Rs. 20 crores.
|Depends on factors like age, profession, credit score, and income. You can avail up to Rs. 35 lakhs.
|You get a longer repayment term than a personal loan. The term extends up to 15 years.
|You get a shorter repayment term and LAP. The maximum repayment period is up to six years.
|Loan processing time
|Longer processing period. It may take 2-3 days or more.
|Shorter processing period. Same-day approval.
|Risk of losing property ownership.
|Lower credit score and late payment penalty.
Now that you are aware of the difference between a personal loan and a loan against property, assess your financial requirements, and apply for the right type of loan accordingly. For the best loan offers, you can approach Tata Capital and get the desired amount at an affordable interest rate.