Loan against Property is also known as LAP. This is considered as one of the cheapest loan available in India. The rate of interest and other charges are very low as compared to other types of loans. The interest rates are as low as 11%-16% depending on the banks and applicant’s eligibility criteria. As the rate of interest is low, there is lot of demand for this type of loan and the monthly installment is also very low.
Just as the name implies it is a loan given against the property. That is bank, who is the lender will approve loan at the basis of a mortgage. As there is a security deposit, the rate of interest is low; this is because of the low risk associated to the loan. In case if the borrower defaults to make the payment, the ownership of the mortgage will be transferred to the lender. However, this loan can be availed by those individuals who have some property or asset to pledge their loan against. The property should be physical and can be movable or immovable.
Here are some of the main differences between loan against property and personal loan. This will help you to understand why most individuals prefer loan against property.
Differences between Loan against Property and Personal Loan
|Loan Against Property||Personal Loan|
|Loan is approved at the guarantee of mortgaged property||No need of security or guarantor for taking a personal loan|
|This is considered cheapest loan after home loans||Charges are costlier as compared to loan against property|
|Rate of interest ranges between 12% -16%||Rate of interest ranges between 16% -21%|
|As loan is cheaper monthly EMI are small||EMI amount will be greater comparatively|
|Value of the property and income of the individual will determine the loan amount||Loan amount will be calculated as per the income of the individual|
|Maximum loan tenure is 15 years||Maximum loan tenure is 5 years|
|Secured loan||Unsecured loan|
|Low risk of default by borrowers||Risk of default is high|
When Should You Choose Loan against Property over Personal Loan?
- Tenure Of Loans:
As the loan against property is a secured loan banks are willing to offer loan up to 15 years tenure depending on the age, income and other eligibility criteria of the applicant. However personal loans are offered only up to 5 years and the limit of the loan amount is also comparatively smaller. In case of a small loan amount without any asset to pledge personal loan is a good option but the best option is always loan against property.
- Loan Amount:
Due to the fact that the loan is secured with a mortgage banks are willing to offer huge amount as loan. However, apart from the value of the property; income, age, past payment records, credit rating is considered before applying loan. The loan amount limit for personal loans is up to 15-20 lakhs whereas with loan against property you can look for huge amounts.
- Interest Rates:
By now it is very clear that the rate of interest for loan against property is very low as compared to the interest rate of personal loan. This difference is due to the risk factor associated to both types of loans. In loan against property as the lender has less risk of losing money, the rate of interest is low.
Reasons to Choose Personal Loan
- Processing Time:
Processing time for personal loans are faster as compared to loan against property, the reason for this is banks will have to scrutinize the property documents thoroughly before approving the loans. This check includes bank’s internal checks, legal checks, paper work of agreement of the contract apart from checking the applicant’s details and eligibility.
Documents for Applying for a Loan against Property:
|Salaried Customers||Self Employed Professionals||Self Employed Businessman|
|Application form with photograph||Application form with photograph||Application form with photograph|
|Identity and Residence Proof||Identity and Residence Proof||Identity and Residence Proof|
|Latest Salary-slips||Education Qualifications Certificate and Proof of business existence||Education Qualifications Certificate and Proof of business existence|
|Form 16||Last 3 years Income Tax returns (self and business)||Business profile|
|NA||Last 3 years Profit /Loss and Balance Sheet||Last 3 years Profit /Loss and Balance Sheet|
|NA||Last 3 years Income Tax returns (self and business)|
|Last 6 months bank statements||Last 6 months bank statements||Last 6 months bank statements (self and business)|
|Processing fee cheque||Processing fee cheque||Processing fee cheque|
Make use of this information to figure which loan will best suit your needs. In simple if you are looking for a small loan amount for a short tenure without pledging properties then personal loan is ideal else the best and cheap option is loan against property.