Personal Loan and Loan Against Property – Similar but Not the Same!
Even though both types of loans help you satisfy similar objectives, they are quite different in
nature and have vastly differing characteristics. This fact is best elucidated when you consider a few key differentiators.
There are different ways of quenching the need of funds -, and one much sought after way is opting for a personal loan. They are often a very lucrative way of availing funds due to quick sanctions, minimal paperwork and faster disbursals.
LAP is a loan against collateral, that is borrowed from a financial intermediary against property that is under home loan obligation or owned. The property presented as collateral is then evaluated to check the current market value and a certain percentage of this value is disbursed in form of loan, called loan-to-value (LTV).
Now, if you are stuck between the dilemma of which one to choose, below are a few factors you should consider depending on the need and urgency.
• Processing timeframe: As the borrower’s property is mortgaged for obtaining loan, the financial institution has to verify every related document before disbursal. The lender may also need technical study to ensure the ownership of the property and its prevailing market value. Also, the borrower is asked to submit documents to prove his loan repayment capability. This whole procedure can take place between 15 to 30 days and thus, LAP isn’t appropriate for those looking for speedy disbursal of loans. On the other hand, Personal loans don’t require any collaterals as the monetary establishments judge your application based on your month to month pay which makes it likely for your application to get affirmed within 7 days.
Interest rates: Being an anchored loan, the interest of loan against property is typically lower than that of personal loan. This can be anywhere in the range of 11% and 16%. On the contrary interest rates of personal loans can go up to 24% However, there are companies and NBFC’s that now provide low interest loans to borrowers. The primary factor deciding the interest in loan against property is the borrower’s credit score, while some personal loan institutions do not judge people based on their credit score. Personal loan is suitable for people looking for short team loans regardless of their credit score while loan against property is more suitable for people looking for long term loans with a certain credit score
Tenure of loan: In case of LAP, the tenure can be stretched up to 15 years while the furthest a personal loan can go up to is around 5 years. Higher years of tenure cuts down EMI Payout which makes it more affordable when it comes to big ticket loans. However, the other side of the coin is that increased tenure results in higher interest payout.
Loan amount: In case of personal loans the amount of loan sanctioned completely depends upon the borrower’s month to month pay and their capacity to pay for the loan. while in case of loan against property the credit sum relies upon both the market estimation of the borrower’s property as well as their income. The amount of loan in LAP runs between 40– 70% of the market estimation of the property and can go up to a several crores depending on the property mortgaged. The upper limit or the highest loan approved for a personal loan is often around 15-20 lakhs. A borrower should consider LAP if they are looking for higher loan disbursal.
Despite the fact that, LAP is a superior alternative than personal loans in terms of financing cost, Tenure and amount of loan, it misses the mark as far as handling time. Subsequently, for individuals requiring assets at short notice, Personal loans will be the main choice. Likewise, the greatest hazard related with loan against property is that the bank can seize your property in case you default in repayments. Along these lines, make a point to self-assess your repayment capability before settling on a loan against