Loan Against Property Vs. Personal Loan

By BankBazaar.com | December 9, 2018

Always wondered which loan is better to meet your money needs? Here’s the answer.

Loan Against Property Vs. Personal Loan

You may have a lot on your mind when it comes to gathering funds for contingencies, financing your business or even renovating your home. The first thing most of us probably ask is, ‘Where will I get the money from?’

There are many ways you could arrange for money, and one of those ways is by 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 (LAP)?

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%. LAP belongs to the secured loan category where the borrower gives a guarantee by using his property as security.

This loan is one of the cheapest retail loans after Home Loans and usually starts at 10%. Since the rate of interest is lower, LAP’s Equated Monthly Installments (EMI) usually work out cheaper. The maximum loan eligibility is determined primarily by the value of the property and income. So, the loan amount is usually much higher than that provided by Personal Loans. While Personal Loans can be availed for up to Rs. 50 lakhs, the LAP loan amount can go up to Rs. 5 crores.

What purposes can I take a LAP for?

Loan Against Property can be taken for the following purposes:

  • Expanding your business
  • Sending your children for higher studies abroad
  • Renovating your home
  • For medical treatments
  • Any other personal/business needs

What kind of properties can I mortgage?

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

What is the eligibility criteria to get a LAP?

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

  • Cost/value of the property mortgaged
  • Your income, savings, debt obligations
  • Your repayment track record for other loans, credit cards etc. That is, your Credit Score

What are the normal interest rates and tenure?

Interest rates on loan against property range from 10% -16% and the loan tenure can go up to 15 years.

How is a LAP 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 loan for personal use without any security or guarantor
One of the cheapest retail loans after Home Loans; usually in the range of 10% – 16% Higher interest rates compared to LAP; usually issued at interest rates in the range of 12% – 21%
Since the rate of interest is lower, LAP’s Equated Monthly Installments (EMI) usually work out cheaper Since the rate of interest is high, the EMIs 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 and Credit Score
Maximum loan tenure for LAP is up to 15 years (180 months) Maximum loan tenure for a personal loan is up to 5 years (60 months)
The maximum loan amount can go up to Rs. 5 crores The maximum loan amount can go up to Rs. 50 lakhs
Secured loan Unsecured loan

What documents are required for LAP?

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

LAP is one of the best ways to raise money. The only disadvantage of such a loan is if the borrower is unable to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. It’s best to base your decision on your repaying capabilities.

Haven’t got any property but need funds? Get a Personal Loan. Here are loans that don’t require security or a guarantor. Go right ahead!

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

13 thoughts on “Loan Against Property Vs. Personal Loan

  1. AvatarRavi

    Can we have a link to this page for sending this info as a mail to my brother or friends ?

    Reply
  2. Avatargxva

    Shall we claim Income Tax benefit for the Interest paid on Loan Against Property?

    Reply
    1. AvatarMahesh

      No. The tax benefit is there only for the Home Loan and not on any type of loan.

      Reply
  3. AvatarANIL S NAMBOODIRI

    I NEEDED LOAN AGAINSTPROPERTYPERSONALLOAN FOR EXPANDING MY BUSINESS.

    Reply
  4. AvatarKattyBlackyard

    Hi, very nice post. I have been wonder'n bout this issue,so thanks for posting

    Reply
  5. Avatargurpreet

    i am a lady of 38 yrs working in private organization from last 6 yrs taking salary half by checque and rest by cash by cheque taking 4000.salary account is in hdfc amritsar.i am eagerly needed loan only 150000 against my residencial property cost 1400000 on airport road near plaha sahib road am i eligible for this.

    Reply
  6. AvatarSaji Daniel

    I am woking in maharashtra and I am planning to purchase some land in Kerala. I want to know whether I can take the housing loan for purchasing the land. If it the answer is Yes, then kindly let me know more details. thanks

    Saji

    Reply
  7. AvatarSchedule

    You you could make changes to the post subject title BankBazaar | Loan against property vs. Personal loan to something more specific for your content you write. I loved the the writing still.

    Reply
  8. AvatarMayuresh Budhkar

    I wish to raise finance for my daughters education. Which option would be better? (1) Educational loan or (2) Loan against property.

    Reply
  9. Avatarsuresh

    my credit track unfortunately bad. There is one 'settled' record in the whole 7 years that too for an amount of Rs1300 to a credit card. Will it be a concern to any LAP lenders

    Reply
  10. AvatarAbdul Azeem

    Dear Sir I have my plot which is havinng value of 35 lakhs I need 10 lakh rs loan against property how can I get loan to against priperty

    Reply
    1. AvatarTeam BankBazaar

      Hi Abdul,

      You can check your eligibility and offers for a loan against property here.
      Cheers,
      Team BankBazaar

      Reply

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