You may find yourself helpless and cash-strapped at some point in time and when that happens, as life is uncertain, you may require financial assistance to fulfil your needs and expectations. Whether you are planning for business expansion, wedding, higher education or need funds for a medical emergency, chances are you will need the help of a financial institution to arrange for funds. 

While looking for ways to arrange funds, it is necessary to consider all funding options and their benefits per your necessities and circumstances. Let’s look at two major funding variants and understand which is better between the two. Let’s settle the debate on a loan against property vs a personal loan in this article. 

LAP vs. Personal Loan

A loan against property in India refers to a secured loan where lenders hold borrowers’ property as collateral and lend money against it. The funds availed of under a loan against property can be used for business expansion, paying for medical treatment or wedding, etc. 

A personal loan, on the other hand, does not require any collateral or security. Therefore, lenders see personal loans as riskier financial tools and therefore, charge a much higher rate of interest on personal loans as compared to loans against property. 

In this article, we highlight some key differences between loans against property and personal loans.

Loan Amount and Tenor

In the case of LAP, one can get up to 75% of the funding amount against the property. But in the case of a personal loan, one can avail of only a limited loan amount. For instance, Bajaj Housing Finance offers loans of Rs.5 crore or more, basis eligibility, under LAP. 

Further, whether you avail of a high-value loan or a small-ticket loan under LAP, you can get higher tenor options of up to 15 to 18 years for repayment. In the case of a personal loan, the tenor is generally under 5 years. These factors surely make us vote in favour of loans against property. 

Documentation Process

The documentation process is another key parameter to keep in mind.

A personal loan is an unsecured loan. Thus, one does not need to pledge any collateral against the lending amount. Therefore, personal loans are processed quickly. Lenders need only a few documents, such as income proof, bank statements, and credit score, to check the repayment ability of a borrower in the case of a personal loan. Therefore, personal loans get processed quite quickly.

In the case of a loan against property, if you are going to borrow a loan against property, lenders will study all your documents carefully, which in turn, leads to a higher loan approval time for LAP. However, know that Bajaj Housing Finance processes all applications quickly and disburses off the funding process within 72 hours* of a borrower submitting all the required documents. 

Interest Rates and Processing Fees

Compared to LAP, the interest rate on personal loans is always higher due to the unsecured nature of the loan. In the case of a personal loan, the lender has higher risks in case of defaults. The interest rate on loans against property lies between 11% – 13%, whereas personal loans are extended at interest rates ranging between 11% and 24%. Bajaj Housing Finance offer loans against property at interest rates starting at 8.35%* p.a., basis eligibility. 

The lender generally charges processing fees starting at 0.25% of the total amount in case of availing LAP. Whereas for PL, these processing fees can vary between 1.5% – 3.0% of the total loaned amount. It makes the LAP funding option better than PL.

Credit Score

A personal loan is an unsecured loan that comes with huge risk and higher interest rates compared to a loan against property. So, borrowers are required to have a high credit score to take a personal loan. 

In the case of LAP, borrowers can avail themselves of LAP easily, even with a low credit score. 

So, Which One is Better?

If you need money urgently to meet your various needs and do not have time to wait for the loan to get sanctioned, take a personal loan. However, if you need a big-ticket loan and have a few days’ time to wait for approval, opt for a loan against property. Loans against property are sanctioned at a much lower interest rate than personal loans, making them the more affordable choice between the two.