Loan against property vs. Personal loan

by BankBazaar.com Desk on 14, December, 2009   11 |

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LAP (loan against property)  is one of the cheapest retail loans after home loans; usually in the range of 12% – 16%. Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper.Maximum loan eligibility is determined primarily by the value of the property and income.

You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child’s wedding. The first thing that would come into the mind of most of us is, ‘Where would I get the money from?’

There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.

What is a loan against property?

A loan against property (LAP) is exactly what the name implies – a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property’s market value, usually around 40% – 60%. Loan against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.

What purposes can I take a loan against property for?

Loan against Property can be taken for following purposes:

• Expanding your business

• Getting your son/daughter married

• Sending your son/daughter for higher studies abroad

• Funding your dream vacation

• Funding medical treatments

What kind of properties can I mortgage for a loan?

You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.

What is the eligibility criteria to get a loan against property?

This criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:

• Your income, savings, debt obligations

• Cost/value of the property mortgaged

• Your repayment track record for other loans, credit cards etc.

What are the normal interest rates and tenure for repayment offered for a loan against property?

Interest rates on loan against property range from 12% -15.75% and the loan tenure can be up to 15 years.

How is a loan against property different from a personal loan?

Loan Against Property	Personal Loan
The individual takes the loan by mortgaging the house property	An individual can take a personal loan for personal use without any security or guarantor
One of the cheapest retail loans after home loans; usually in the range of 12% – 16%	Higher interest rates compared to LAP; usually issued at interest rates in the range of 16% – 21%
Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper	Since the rate of interest is high, the Equated Monthly Installments (EMI) for personal loans are high
Maximum loan eligibility is determined primarily by the value of the property and income	Maximum loan eligibility is determined primarily by an individual’s income
Maximum loan tenure for LAP is up to 15 years (180 months)	Maximum loan tenure for personal loan is up to 5 years (60 months)
Secured loan	Unsecured loan

What documents are required for applying for a loan against property?

Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.

Salaried Customers	Self Employed Professionals	Self Employed Businessman
Application form with photograph	Application form with photograph	Application form with photograph
Identity and Residence Proof	Identity and Residence Proof	Identity and Residence Proof
Latest Salary-slips	Education Qualifications Certificate and Proof of business existence	Education Qualifications Certificate and Proof of business existence
Form 16	Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet	Business profile Last 3 years Profit /Loss and Balance Sheet Last 3 years Income Tax returns (self and business)
Last 6 months bank statements	Last 6 months bank statements	Last 6 months bank statements (self and business)
Processing fee cheque	Processing fee cheque	Processing fee cheque

A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. Base your decision on your repaying capabilities.

Get the best deals on loan offers

• Home loans
• Personal loans
• Car loans

Some useful personal finance calculators

• EMI calculator
  
• Loan repayment calculator

Also read:

• Money sitting on our LAP!
• When not to take a personal loan!
• More articles