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Which Is Better Loan Against Property Or Personal Loan

Why a Loan Against Property Is Better than a Personal Loan

Life is uncertain. Even if you are someone who takes only calculated risks and always plan for the future, life can throw you in the middle of a financial crisis, leaving you completely cash strapped. Do not feel dejected though; banks and NBFCs offer ample financial tools to help you tackle financial emergencies.

The problem arises when you make a hasty decision in a financial emergency without considering all the options available. Most people think of a personal loan when in a difficult position financially. But the fact is that a Loan Against Property (LAP) is a much better option. You can borrow the amount of your choice affordably and repay over a comfortable time frame. Here, we tell you why a loan against property is better than a personal loan in times of urgent need. Read on.  

What Is Loan Against Property?

A loan against property is a secured loan. In this type of loan, your chosen lender sanctions a loan after keeping your property as security. The property papers stay with the lender until you have completely repaid the loan with interest.

In terms of interest rate, borrowers should know that a loan against property is the cheapest loan after a home loan. Further, the funds availed of under this loan can be used to meet all kinds of expenses. However, the borrower must inform the lender of their purpose at the very beginning. 

What is a Personal Loan?

A personal loan is a type of unsecured loan. In this type of loan, a person is not required to pledge anything as security. Much like LAP, borrowers can use the funds availed of to meet any kind of expense. 

So, Why Is LAP Better than Personal Loan?

Under LAP, You Can Avail of High-Value Funds

A loan against property is a secured loan that puts lenders at minimum risk. Therefore, lenders do not hesitate while sanctioning high loan values, especially when the property in question is in good condition and at a prime location.

In general, lenders agree to sanction a loan equivalent to 75% of a property's value. On the other hand, since personal loans are unsecured loans, lenders are not in a position to issue incredibly large sums, as the risk is too high.

LAP Draws a Much Lower Interest Rate Than Personal Loan

Since LAP is a secured loan, it draws a much lower interest rate than a personal loan. In general, lenders charge anywhere between 8.5% and 16% as interest on LAP. On the other hand, the interest rate on personal loans varies from 11% to 22%. Thus, the interest paid on the principal amount always comes out to be lower for LAP than personal loans.

LAP Loans Can Be Availed of for Longer Tenors than Personal Loans

LAP loans generally involve substantial amounts and have a higher tenor period. Though the tenor varies from lender to lender, it is anywhere between 5 to 20 years for LAP loans. In the case of personal loans, the tenor period generally cannot exceed 5 years.

Personal Loans Draw Higher Processing Fee and Prepayment Charges

Lastly, the processing fee is always higher for personal loans. For LAP loans, the processing fee is anywhere between 0.5% to 1.5%. On the other hand, to process personal loans, lenders keep 1.5% to 2.5% of the total loan value as the \processing fee. Similarly, personal loans also draw higher prepayment charges. In the case of LAP loans, lenders do not charge individuals prepayment charges on floating rate LAP loans.

These factors clearly settle the debate in favour of loans against property. Now that you know why and how LAP is better than personal loans, apply with Bajaj Housing Finance today if you are in urgent need of funds.