Loan against property (LAP) vs. personal loan - Which is better?

Loans are easy financial solutions that help meet your short- and long-term financial needs. Moreover, depending on your loan type, you can arrange for substantial funding to meet high value needs like business expansion, debt consolidation, buying a property, etc.

Based on your financial needs and circumstances, you can compare LAP vs personal loan to fulfil your requirements. These form the two primary subdivisions of loans: secured and unsecured loans. Let’s understand and analyse secured loans vs. unsecured loans.

Secured vs. unsecured loans
 

Secured loans are issued against collateral, requiring you to pledge an asset whose value secures the loan.

Unsecured loans do not require any collateral security. They are issued based on your income, credit score, and other eligibility parameters. 

Now that you know what secured and unsecured loans are, let’s analyse loan against property (LAP) vs personal loan – two of the most popular choices under each of these categories.

What is a loan against property?
 

A loan against property (LAP) is a type of secured loan issued against a property's mortgage. If you own a commercial or residential property in your name, you can pledge it or mortgage it as collateral and get a loan against its value. 

What is a personal loan?
 

A personal loan is a multipurpose financial solution offering funds for personal or commercial needs. It is an unsecured loan that is available instantly.

LAP vs personal loan: The similarities
 

Both LAP and personal loans are credit facilities that can offer funds for your financial needs. Some of the similarities between them are as follows -

• They offer a multipurpose loan, which can be used for any financial need
• The loan is repaid through equated monthly instalments (EMIs)
• Interest is payable on the loan amount
• Repayment default affects your credit score negatively

LAP vs personal loan: The differences

Besides some similarities, a loan against property differs from a personal loan. The primary differences can be highlighted in the following points -

●  Collateral requirement

The need for collateral is one of the primary differentiating factors when comparing LAP vs personal loan. In comparison, LAP requires the mortgage of a residential or commercial property, whereas a personal loan doesn’t.

●  Loan amount

Under LAP, your property is evaluated by the lender, and then the maximum loan amount is determined. Since property values are high, you can get considerable funding from LAP.

Personal loans determine the loan amount based on your income, credit score, existing debts, and other eligibility qualifications. They usually offer a lower loan amount than LAP.

●  Interest rate

LAP is secured against the mortgage of the property. If you default on the repayment, the lender can sell off the property and realise its dues. This reduces the lender’s default risk, which is why the loan against property interest rate is low.

Since personal loans are unsecured, the lender faces a higher risk of defaulting on repayment. The interest rates are higher than those of LAP to compensate for this risk.

●   Repayment tenure

The repayment tenure under a LAP is higher compared to personal loans. While personal loans can offer tenures of up to 60 to 72 months, loans against property offer tenures of up to 25 years.

●   Accessibility

Another factor that differentiates LAP vs personal loans is the ease of accessing them. Personal loans are available quite easily and with simple eligibility parameters. You can even apply online and get the funds into your account within hours.

With a loan against property, you must fulfil specified eligibility parameters to qualify. Moreover, the loan sanction takes time since the lender evaluates and verifies the property before the funds are disbursed.

●   Documentation

Personal loans have simple and minimal documentation. You can get the funds with basic documents like your identity proof, age proof, address proof, and bank details.

With LAP, you need to submit both basic and property documents. The loan involves more comprehensive documentation than personal loans.

LAP vs personal loan: Which one should you choose?
 

Choosing between a LAP and a personal loan depends entirely on your suitability. A loan against property is a better choice if you -

• Own a property
• Want to save on the interest outgo
• Need a large amount of loan

On the other hand, if you do not have any property in your name, a personal loan would be the only choice. Moreover, if your financial needs are limited, you can opt for a personal loan and choose a short repayment tenure to save on the interest outgo.

So, assess your financial needs and then make an informed choice.

IDFC FIRST Bank Loan Against Property: Meeting your financial needs with ease
 

If you are looking for a loan against property, choose IDFC FIRST Bank. The following are the reasons that make IDFC FIRST Bank Loan Against Property the right choice -

• Loans up to ₹15 crore
• Repayment tenure going up to 25 years
• A high loan-to-value (LTV) ratio of up to 80% of your property’s value
• Easy facility to transfer an existing loan to IDFC FIRST Bank
• Get a top-up facility for additional funding needs
• Get a loan against residential, commercial, or industrial property and even against godowns
• Easy documentation and application process
• Get the facility of a lease rental discount program with rental income-based eligibility
• You can use the loan to buy commercial property
• Get the dropline overdraft facility on the loan and save on the interest outgo

LAP vs. personal loans: Making the right choice
 

LAP and personal loans are designed to meet your sudden or planned financial needs. Understand what these loans are, how they work, and their respective pros and cons. Know their difference and choose the right funding choice depending on your needs, suitability, and affordability. Choose IDFC FIRST Bank Loan Against Property for optimal funding, easy repayment with extended tenures, and easily fulfil your financial needs.