Loan Against Property vs Personal Loan: Which One to Choose?

When you need funds for personal or professional purposes, you may consider taking a loan from a bank or a financial institution. However, there are different types of loans available in the market, and choosing the right one can be tricky. Two of the most common loans that people opt for are loan against property (LAP) and personal loan. Both of these loans have their own advantages and disadvantages, and you should compare them carefully before making a decision. In this blog post, we will explain the main features, benefits, and drawbacks of LAP and personal loan, and help you decide which one is better for your needs.

Loan against property (LAP) is a type of secured loan that you can avail by mortgaging your property as collateral. The property can be residential, commercial, or industrial, and it should be free from any legal disputes or encumbrances. The loan amount that you can get depends on the value of your property, your income, and your repayment capacity. Typically, you can get up to 60% to 70% of the property value as LAP.

Personal loan is a type of unsecured loan that you can avail without pledging any security or collateral. The loan amount that you can get depends on your income, credit score, and other eligibility criteria. Typically, you can get up to 20 times your monthly income as personal loan.

Here are some of the key parameters that you should compare while choosing between LAP and personal loan:

The interest rate is one of the most important factors that affect the cost of borrowing. Generally, LAP has a lower interest rate than personal loan, as it is a secured loan and the lender has less risk of default. The interest rate for LAP usually ranges from 7% to 14% per annum, while the interest rate for personal loan usually ranges from 10.25% to 26% per annum. However, the interest rate may vary depending on the lender, the loan amount, the loan tenure, and your credit profile.

The loan amount is another factor that determines how much funds you can access for your needs. Generally, LAP offers a higher loan amount than personal loan, as it is based on the value of your property. You can get up to 60% to 70% of the property value as LAP, which can be in crores depending on the property. On the other hand, personal loan offers a lower loan amount, as it is based on your income and credit score. You can get up to 20 times your monthly income as personal loan, which can be in lakhs depending on your income.

The loan tenure is the period within which you have to repay the loan along with interest. Generally, LAP has a longer loan tenure than personal loan, as it is a bigger loan and the lender wants to reduce the EMI burden on the borrower. The loan tenure for LAP usually goes up to 15 years, with some lenders offering up to 20 years. On the other hand, personal loan has a shorter loan tenure, as it is a smaller loan and the lender wants to recover the money faster. The loan tenure for personal loan usually goes up to 5 years, with some lenders offering up to 7 years.

The processing time is the duration between applying for the loan and getting the loan disbursed. Generally, personal loan has a faster processing time than LAP, as it is an unsecured loan and the lender does not have to verify the property documents or conduct a technical evaluation. The processing time for personal loan usually ranges from 2 to 7 days, with some lenders offering instant approval and disbursal. On the other hand, LAP has a slower processing time, as it is a secured loan and the lender has to check the property title, valuation, and legal status. The processing time for LAP usually ranges from 1 to 3 weeks.

The tax benefits are the deductions that you can claim from your taxable income for paying interest on the loan. Generally, LAP offers more tax benefits than personal loan, as it is a secured loan and the interest paid can be claimed as a deduction under Section 24 of the Income Tax Act, up to Rs. 2 lakh per annum, if the loan is used for buying or constructing a house. Additionally, if the loan is used for business or professional purposes, the interest paid can be claimed as a business expense under Section 37 of the Income Tax Act. On the other hand, personal loan offers limited tax benefits, as it is an unsecured loan and the interest paid can be claimed as a deduction only if the loan is used for specific purposes, such as education, medical treatment, or home renovation.

Both LAP and personal loan have their own pros and cons, and you should choose the one that suits your needs and preferences. If you need a large amount of money for a long term, and you have a property that you can mortgage, you can opt for LAP, as it offers a lower interest rate, a higher loan amount, a longer loan tenure, and more tax benefits. However, if you need a small amount of money for a short term, and you do not have a property or do not want to risk it, you can opt for personal loan, as it offers a faster processing time, no collateral requirement, and flexible end-use. You can also use a loan EMI calculator to compare the EMIs, interest cost, and total repayment amount of both the loans, and choose the one that fits your budget.