Comparison Between a Personal Loans and a Loan Against Property - Loan Trivia


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Friday 6 September 2019

Comparison Between a Personal Loans and a Loan Against Property

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It is not possible to predict any financial emergency that might arise. In such a situation, where an emergency may arise, people either start liquidating their assets or think of applying for a loan. Liquidating assets might not be a wise decision because you might end up losing your assets if you don’t meet the deadlines. Selling them might solve the problem temporarily, but you might regret that in the future when you actually need the asset for something else. 

Hence, a good option for you is to apply for a loan. As lenders provide loans to the applicants, you need to understand what type of loan you should opt for that might suit your needs and fits your budget. A loan application involves a lot of documentation and the verification of these documents takes time which can cause a delay in the sanctioning of the amount. 
There are many types of loans offered by financial institutions, but if you have a property and you are thinking of applying for a loan against property (LAP), you need to reconsider your decision by considering the following points: 

What is Loan Against Property? 

This is one of the basic loans provided by the lenders, therefore, you can avail a loan against property (LAP) by offering your property as collateral. It is important to know that the lender only approves 40 percent to 60 percent of the property value for the loan. 

What is Personal Loans? 

Personal Loan is small loans provided by the lenders, which basically have a shorter tenor. As Personal Loans is a type of unsecured loans, you don’t need to offer collateral to the financial institution. 

There are various features and benefits of Personal Loans:

# Faster approval 
Minimal documentation 
Lower tenor 
Online applications get approved faster 

While applying for a loan you need to consider the difference between a Personal Loans and a loan against property. These are the points that you need to consider: 

Collateral: If you are applying for a loan against property, you need to offer your property or house as collateral to the lender. Any default on the monthly payments can put you at risk of losing your property. 
Meanwhile, in Personal Loan you don’t need to offer any collateral to financial institutions or NBFCs for security as any default on payments may only affect your credit score. If you have a bad credit score your loan process in the future might get affected. 

Interest Rate: The interest rates vary for different lending products. While it is very important to consider the personal loan interest rates as it affects the final repayment amount. In LAP you are offering your property as security interim to the lender and as the lender has security for the loan, the interest rate for LAP is considerably low. 
But as the case is different in Personal Loan, you don’t need to offer security interim to the lender. Personal Loans have higher risks involved, due to which the Personal Loans come with a slightly higher rate of interest. 

Tenor: The LAP is a loan for higher amounts, wherein you can avail high amounts of funds from the banks as a loan. If the loan amount is higher, it is not possible for some people to pay it in a shorter period of time. Hence, the tenor for a loan against property is relatively longer than the Personal Loans. 

As Personal Loans are small loans you can only avail loans up to INR 25 lakhs. Also, you don’t need to offer collateral for a Personal Loans approval. Due to all these reasons, the tenor for a Personal Loans is up to 5 years offered by any financial institutions or NBFCs. 

You need to make sure that you choose a loan according to your needs. While Personal Loans applications get approved faster than a loan against property, you also need to keep in mind that a loan against property provides higher amount than the Personal Loans.
Must Read: Tips to Reduce the Interest Rate of a Loan Against Property

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