It is often a confusing situation for a borrower to choose between a loan against property mortgage or personal loan. A personal loan is given on the basis of income of applicant whereas the LAP is given on the basis of a combination of income and property kept as a mortgage. A Personal loan is usually taken for personal financial needs like medical expenses, wedding or vacation funding, house repairs or renovations. Applicants are usually confused between these two options. Let us look at which loan option among them is better for you –
- Banks provides a personal loan based on the repayment capacity of the borrower which depends on his salary, credit worthiness and previous repayment track record. A loan against property is usually granted against your property as a mortgage in addition to above factors. A LAP is dependent on the market valuation of the property.
- Personal loans are usually provided for a small ticker size like 3-5 Lakhs and loan against property is usually provided for a large ticker size. Banks can lend up to 40%-70% of the current market value of the property. For example, suppose the market value of your property is Rs 1 Crores then you are eligible for a loan amount of 50-60 Lakhs from the bank. If you require a loan amount of large amount for your business purpose then a loan against property is a better option compared to personal loan.
- Since, LAP is a secured product and a personal loan is not, interest rates offered on LAP are usually lower compared to interest rates offered on personal loan. Usually, interest rates offered on LAP is between 12% – 16% and interest rates offered on personal loan on are between 13% and 22%.
- A LAP is offered for longer tenures up to 15 years and a personal loan is offered for a shorter tenure of 3 years up to maximum limit of 5 years.
- As loan against property is usually offered for longer tenure compared to a personal loan, EMI for it turned out to be lower compared to personal loan.
- For availing a loan against property you need to put your original property papers with the lending institutions but for a personal loan you don’t need to put any collateral for your loan application.
- Usually, the processing time for a LAP would be longer compared to a personal loan. It is provided against property as a mortgage. Hence, the bank needs to verify your property from legal and technical point of view. This verification usually takes some time. A personal loan can be disbursed in 3-5 days and a LAP is disbursed in 3-10 days depending on reports.
As we can see from above discussion that a loan against property mortgage is a better option compared to personal loan. It offers advantages like higher tenure, lower interest and higher loan amount. We can safely say that if you want a larger loan amount with longer tenure you should go for a LAP. In fact, it is one of the better options among banking products available in the market.