David Thacker
Everyone faces a situation where they want to borrow money to meet certain expenses. Typically, most people tend to apply for a loan from banks and NBFCs to get the desired funds. But, more often than not, while borrowing people have this confusion whether they should apply for a personal loan or loan against property, which one is better? So, if you are looking to apply for a loan, knowing the difference between personal loan and LAP will help you make an informed decision.
What is Loan Against Property or LAP?
As the name suggests, LAP is a type of secured loan where the lenders offer the loan against the property that you keep as collateral. The possession of the property remains with the lender until you repay the full amount. The money you obtain from a loan against property can be used for any purpose you want like business expansion, marriage, medical emergency, home renovation, etc. The lender does not have a restriction on the purpose of the loan. A significant feature of LAP is that a lot of people prefer applying for this loan because the interest rate is competitive.
What is Person Loan?
A personal loan is a type of unsecured loan where you need not pledge any asset or property against the amount you borrow. The lenders have no restriction on the purpose for which you can use the money.
LAP vs Personal Loan
To understand the difference between the two, let us compare the two based on different aspects of the loan.
- Loan Amount
Since LAP is a secured loan, you can avail a higher amount. Generally, the lenders provide loan up to 60-70% of the value of the property that you pledge.
A personal loan, on the other hand, being an unsecured loan, the amount is usually limited. The lenders determine the maximum amount based on the applicant’s income, credit history and repayment capacity.
- Rate of Interest
As compared to the personal loan, the interest rate for loan against property is much lower. This is because the risk for the lender is lower with LAP. If the borrower defaults on the repayment, the lender may take over the property.
A personal loan interest rate is generally higher than the LAP. This is because the risk involved is much higher. The lenders determine the interest rate based on borrower’s employment, place of residence, income, and CIBIL score.
- Loan Duration
Apart from getting a higher amount, LAP allows the borrower to apply for a loan with longer duration. The tenure can be up to 10 years or more. This also helps the borrowers to lower the EMI and makes repayment easy.
Personal loans have a shorter duration. Most lenders in India offer personal loan to a maximum period of five years.
- Processing Time
Before approving the LAP, the lenders evaluate the value of the property that the borrower wishes to pledge. The evaluation process includes legal verification of the papers, physical inspection of the property, internal checks, etc. This can take time. So, in a nutshell, the processing time for LAP is more than a personal loan.
Personal loans have a quick processing time. Most lenders disburse the amount immediately after the loan is approved. The lenders usually check the credit score, repayment capacity, and income.
So, the final word, which is better?
The best loan option depends on your requirements like the emergency and the amount of money you need. If you need a high amount, LAP is the best option. But, if you need money immediately, applying for a personal loan would be a wise choice. So, assess your needs, and make an informed decision.
