Life is uncertain and, people have responsibilities. Whether you are planning a wedding for a loved one, paying for the education of your child, engaged in home renovation, or dreaming of expand your business, you need readily available funds. Based on your needs and circumstances, you can opt for different types of loans offered by lending institutions in India.
However, with many different types of loans available in the market, you might think which would be the best suited for your financial needs. In this article, we will look at the two most sought-after loans, i.e., Loan Against Property and Personal Loan.
Definition of ‘Loan Against Property’(LAP)
This is a type of secured loan, where the lender holds the property of the borrower until the entire sum loaned out, is paid back. The property can be a residential building, commercial property. The money loaned can be used for expanding one’s business, medical emergency, house renovations, etc.
Definition of ‘Personal Loan’
This is a type of unsecured loan, where the borrower does not pledge any security with the lender to avail the loan. The lender checks the credentials of the borrower, like credit score, monthly income, etc., before sanctioning the loan. The money loaned can be used to fund a holiday, buy a gadget, for wedding expenses, for one’s children’s education, etc.
How is ‘Loan against Property’(LAP) different from ‘Personal Loan’?
Since LAP is a secured loan, the amount one can borrow is significantly higher than the amount that can be borrowed in the case of Personal Loan (of course depending on the value of the property).
Generally, in the case of LAP, one can avail amounts of up to 70% of the value of the property, secured with the lender. In the case of Personal Loan, the amount is limited, based on one’s income and repaying capacity.
When compared to Personal Loans, the interest rate of Loan Against Property is usually much lower as the lender has low risks in case of payment defaults by the borrower. The interest rates range from 9% to 14%, depending on the tenure of the loan and the monthly instalments for repayment agreed between parties.
Contrastingly, the interest rates of Personal Loans are much higher as it is an unsecured loan which increases the risk factor of the lender. Interest rates in the case of Personal Loans range from 11% to 24% depending on the borrower’s credit score, income, employment status, etc.
One can also get longer tenure, along with a higher loan amount, in the case of LAP. The maximum time allowed to repay the loan can be up to 20 years in the case of LAP. However, the longer tenure will result in high outgo on interest.
In the case of Personal Loan, the maximum time allowed to repay the amount loaned is usually five years. This is ideal for smaller loans.
This is an area where Personal Loan scores over LAP. The benefit and advantage of Personal Loan is that the processing is quick. The funds required are disbursed to the bank account of the borrower immediately after the lender approves it. Only the income and credit score of the borrower is taken into consideration.
But, in the case of LAP, the lending institution does a careful analysis of the property pledged by the borrower. It consists of internal checks, legal checks, and evaluation of the value of the property. It can take up to a month for LAPs to get approved.
‘Loan against Property’ or ‘Personal Loan’? Which one is better?
It all comes down to your individual needs. The best option in case of an emergency and quick disbursement of funds is Personal Loan, where the borrowed amount is also lesser. However, if you need a low interest rate, longer tenure, and a high loan amount, a Loan Against Property is the better option.
Poonawalla Fincorp offers both, ‘Loan against Property’ and ‘Personal Loan’, at affordable interest rates and fast processing. For more details, fill up an online form by clicking here and our representative will contact you.
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