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There is a lot of hassle in mind when it comes to financing your child’s education, child’s wedding, or even if it is about financing your business. whether to choose a personal loan or loan against property. The very first thing you will be worrying about is “money”…” how will I arrange such a big amount” or “From where will I get money”?
Abhishek Mamgain, a middle-class employee wants to send his daughter abroad for a master’s in Law. He doesn’t want money to become a hindrance when it comes to his daughter’s future. He was evaluating various personal loans so he can get enough money. Until his one of the colleagues suggested him to consider to loan against property(LAP) instead. His colleague told him that how is LAP cheaper and comparatively flexible in comparison to personal loans.
Here’s how you can choose between the loan against property and personal loan. Go ahead and find it by yourself:
What is a personal loan?
As the name suggests personal loan, is an unsecured loan that you can raise from the bank for your personal use. No restrictions on the proceeds of the loan amount – you can use it to pay off your debt, construct a house, set up your business, or even for your wedding, etc.
What is Loan against Property?
LAP or Loan against property is a secured loan disbursed against the mortgage of the borrower’s property. It can be residential property (either self-occupied or a rent), commercial property, or even a piece of land.
Just like a personal loan, there is no restriction on using the proceeds of a LAP. You can use the LAP proceeds to finance your child’s education and wedding, to build a home for yourself, to meet medical expenses, to buy personal or commercial vehicles, and even to finance your business.
How to choose between Personal loan and Loan Against Property?
Basis | Loan against Property | Personal Loan |
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Loan against Property can be taken for following purposes like
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Personal can be taken for purposes like house construction, Business set up, Even for weddings, etc. |
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Interest rates of personal loans can be as high as 24%. The main factor determining the interest rates in personal loans is the borrower’s credit score |
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In the case of LAP, the loan tenure can be as high as 15 years Your loan amount will primarily depend on your monthly income and your ability to service the loan |
The upper limit of personal loans is usually around 5 years. In the case of LAP, the loan amount will depend on both the market value of your property and your income |
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Loan amount in LAP ranges between 40–70% of the market value of the property and the maximum loan amount can go up to several crores |
The upper limit is usually around Rs.15–20 lakhs. Consider taking LAP in case you require a higher loan disbursal. |
Documents Required for Personal Loan
Salaried Individuals | Self-Employed Individuals | For NRI’s |
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Documents Required For Loan Against Property
Salaried Individuals | Self-Employed Individuals | For NRI’s |
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Although LAP is a better option than a personal loan in terms of interest rate, loan tenure, and loan amount, it falls short in terms of processing time. Therefore, for people requiring funds at short notice, a personal loan will be the only option. Also, the biggest risk associated with LAP is that the lender can confiscate your property in the event of your default in paying your dues. Therefore, make sure to self-evaluate your repayment capacity before opting for a LAP.
Related Article-
Personal loan: Rules to Follow before Loan Application
All about Loan Against Property
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