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Loan against Property or Personal Loan – Which Is a Better Choice? 

Financial and banking systems have considerably evolved over time. Access to necessary loan options has become very easy in the present fast-moving economy. There can be numerous reasons for you to require financial help, such as a family wedding, purchasing a dream home, availing long overdue abroad vacation etc. To make payment of such a financial obligation, you must consider all the important options at your disposal. Considering the multitude of credit options available, it is natural for you to be extremely overwhelmed while making a specific decision. There is an extremely high possibility that the choice you are looking to make is between an online Personal Loan and a loan against property.

Before you make your decision, read on to have a basic understanding of both the loans: 

What is a loan against property?

As the name suggests, Loan against property refers to the Loan provided against commercial or residential property. This is basically a secured credit option as financing is granted based on underlying collateral or security valuation. The sanctioned loan amount is the percentage of property value known as LTV or Loan to value. There are many lenders offering Loan against property like SBI Loan Against Property, Axis Bank, HDFC bank etc. To calculate your EMI on Loan against property, ensure to use the online Loan Against Property EMI Calculator. Using the calculator allows you to know your monthly EMI outgo towards LAP repayment, which further allows you to plan out your finances well.

What is a personal loan? 

A personal Loan basically is an unsecured credit option. This means you do not require putting up security or collateral to avail approval for funds. Owing to this, processing time for personal loans is extremely short, and loans are sanctioned instantly.

Personal Loan or Loan against property – what must be your choice? 

Funding requirements can vary from one individual to another, and the credit option you select is often dependent on specific circumstances. To assist you in making the right decision, here is a comparison between personal Loan and Loan against property on specific key parameters. Both come with their set of benefits and drawbacks. You must choose between the 2 options after a depth analysis –

Loan proceeds and repayment tenure: Being a secured loan option, the Loan disbursed is basically anchored as per the property value. A loan against property endows access to higher loan proceeds with higher repayment tenure. In the situation of a personal Loan, the sanctioned amount is usually lesser as compared to a Loan against property. Thus, a personal loan is often preferred by those looking for faster and smaller loans for shorter repayment tenure. This is because a personal loan is an unsecured credit option and has a shorter repayment tenure, wherein the EMI tends to be higher than a loan against property. While a Loan against property provides a lower rate of interest, longer payout tenure makes it highly expensive owing to higher interest disbursement.

Processing time: Online personal Loan is best for those looking to avail of speedy Loans as the processing time is lesser than a Loan against property. Most of the personal loans now are pre-approved and may be disbursed easily in a few days or hours. The personal loan amount is unsecured by property or security. Instead, your application is assessed solely based on the steady income flow and average credit score. On the contrary, a Loan against property, owing to its collateral linked structure, takes more time for approval. Before loan disbursement approval, the lender should verify the legitimacy of documents provided by the loan borrower. Applicants might be required to undergo an in-depth authentication process to confirm the ownership and market value of the property.

Also read: Loan Against Property without Income Proof and ITR

Interest rate: Usually, a personal loan is more costly than a Loan against property when it comes to interest rate. Digital lenders often provide a personal loan with an attractive rate of interest. It differs based on the applicant’s credit score and various parameters. On the contrary, as a Loan against property is secured in nature, it can be taken up at a relatively lower rate of interest.

Credit score: As a Personal Loan is an unsecured credit option with a higher rate of interest, paying the outstanding dues by the due date will considerably ameliorate your credit profile and score. A loan against property (LAP) is extremely less risky as it is accepted using the applicant’s assets as security or collateral and has a lower rate of interest. While in both cases, timely due payments can ensure a higher credit score, which might ultimately help you if you require a loan in upcoming times.

Repayment tenure: There is a risk of losing your property ownership if you put it up as security or collateral in a timely way. Thus, you must plan out carefully before availing of this kind of Loan. In the situation of a personal Loan, failure to make payment of EMI leads to a late payment penalty charged on unpaid or overdue interest each month. It can considerably impact your credit score in a negative manner.

Making the correct decision

For various reasons, it is fair to think that both credit options are advantageous in distinct circumstances. A loan against property is best when you require a huge loan amount with a higher repayment schedule. This loan class is a better match when you want to fund business growth or expansion, purchase another property or make payments for your kid’s higher education. On the contrary, a Personal Loan is quicker in terms of the sanctioning process and works best for those interested in quick funds for a short time period. If you are looking to fund your vacation trip, renovate your home or have other multiple objectives, a personal Loan can best work for you. Note that personal loans offered by digital lenders have minimal requirements, a quick approval process, and come with great prepayment perks. You should factor in the overall characteristics of both loan types before selecting the one option that best matches your requirements and needs best. Placing an application for a loan is a major step, and you require ensuring that you select the correct loan type with a constructive plan in the right place to repay it.

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