Are you in need of money to finance your business or fund your child’s education abroad? While there may be several convenient ways to meet these expenses, one of the best options is to go for loan. You could either choose to opt for personal loan or another lucrative choice could be to take a loan against your property.
Loan Against Property (LAP)
It can be defined as a loan disbursed against the mortgage of property. It is granted on a definite percentage of the market value of property which may be around 40% to 60%. This type of loan typically belongs to the category of secured loan in which the borrower provides assurance with the property as a security element.
The chances of getting higher loan amount are greater with the respect to such loans since these are secured. Nearly about 70% of the property value can be granted as the loan amount. The loan against property lowest interest rate might range from 12% to 15% and the loan tenure can be up to 15 years.
One can avail loan against commercial or residential property. You can take a loan against your self-occupied or rented residential property which might be a flat or merely a piece of land. There is also a possibility of deriving loan against school property.
Uses of Loan against Property:-
It can be used for the purpose of business expansion, financing the expensive medical treatments, for your vacations, higher studies in some foreign country etc.
Eligibility Criteria For Loan Against Property
The criteria to be eligible for such loans differ from bank to bank. However, there are some common factors such as:-
- Your earnings, reserves, debt obligations
- The property used as a guarantee
- Your reimbursement track record for other loans etc.
How Does Loan Against Property Differ From Personal Loan?
If you have the option of choosing from one of these loans, you need to analyse both the loan types carefully on the basis of different factors before selecting the right one for you.
Factors:-
- The Loan Amount- As mentioned above, loan against property is a secured loan. While a personal loan is an unsecured loan. Therefore, the risk involved is higher and the loan amount is lower. Also, the amount is decided on the basis of the income and the capacity to repay.
- The Rate of Interest– The interest rate charged on the loan against property is lesser as compared to the personal loan; since there is lower risk of default. While the risk involved with the personal loan is higher.
- Tenure of Loan– In the case of Loan Against Property, you may not only gain a higher amount of loan but also longer tenure. While in a personal loan, the tenure may be up to 5 years.
- Processing of Loan– The loan processing for loan against property is a time taking procedure due to the internal and legal checks, proper evaluation of the property. The banks need to carefully examine the property which the borrower pledges to secure the loan. However, the personal loan processing is faster and the loans are disbursed as soon as it gets approval of the lender.
- Credit Score– You can get a high credit score on a personal loan since it has a high interest rate. With loan against property, you may get a lower credit score and lender gets the benefit of the collateral. But, if the tenure is slightly longer, you can get a better credit core too. Constant Repayment is an ideal way to avail good credit scores.
Conclusion:-
Deciding which one out of the two is better depends on the financial emergency or the need. For the urgent and crucial requirement, personal loan is better. Since, it can be disbursed within few days of the application. Though, for a high loan amount with low interest rate, loan against property would be an appropriate choice.