Loan Against Property vs. Personal Loan: Which is More Suitable for You?

Borrowing funds has become a lot easier today, as most lenders have shifted to digital platforms. This is true for most offerings, including secured options like the loan against property (LAP). In just a few clicks, or a few taps on your smartphone on a dedicated lending app, you can get either a personal loan or loan against property.

However, considering the many options and loan types on offer, it may be hard to pick the right one for you. This is especially true when choosing between loans that have no restrictions on the end-use of the sanction. Here, the common options are the loan against property and the unsecured personal loan.

Read on to know their differences and the factors to consider before you borrow.

Personal Loan: What is it and Who is it for?

A personal loan is an unsecured financing solution, which means it does not require any collateral. Most lenders offer personal loans and you can get up to ₹50 Lakhs depending on your profile. You can use the funds you get without any restrictions, and lenders usually offer instant disbursal.

Since it is an unsecured loan, lenders assess your financial profile and rely on your credit score to determine your eligibility. Here, your credit score is a vital part of the process, and having a low score can restrict access to funding.

Considering all these factors, the personal loan is a good option for borrowers looking to get funds instantly. Since there is no need for collateral, the process is quicker. Also, these loans are for individuals that do not have any assets to their name.

Loan Against Property: What is it and Who is it for?

A loan against property is a secured instrument, wherein you are required to pledge your assets in order to qualify for funding. Here, lenders offer up to 75% of the property's value as a loan, and some may even go beyond this mark.

Like the personal loan, the sanction you get when you avail a loan against property has no restrictions on its usage. You can use it as per your need, and the rate of interest applicable is usually low.

Best of all, lenders typically offer flexible criteria for loan against property eligibility. So, as long as you have a viable asset to pledge, getting funds is relatively easy. As such, the loan against property is ideal for borrowers looking to finance a big-ticket expense.

The quantum of funding with such loans is high, and so it is best reserved for larger expenses. Additionally, this loan is a smart idea for those looking to repay the loan over a longer tenure. Depending on the lender, you can opt for a repayment timeline of up to two decades.

Loan Against Property vs. Personal Loan: Key Differences to Note

Besides the fact that LAP is a secured option while Personal Loan is unsecured, there are other notable differences between these two loan products. However, the need for collateral is a crucial point to note, and you should always keep it in mind.

That aside, here are the other key differences.

• Sanction

A loan against property generally comes with a higher amount, as compared to a personal loan. In most cases, a personal loan lender may offer up to ₹50 Lakhs, but you can get up to ₹25 Crores with a loan against property.

• Cost of borrowing

Secured loans usually have a lower interest rate, as compared to unsecured offerings because you have to pledge your assets. So, the lender isn't reliant on interest payments to recover losses, if any. So, the cost of borrowing for a loan against property is lower than that of a personal loan.

This includes the interest rate, the prepayment charges, and even the processing fees, in some cases.

• Processing time

Since the personal loan is an unsecured loan, it is much easier to avail as you don't need to submit a lot of paperwork. In fact, some lenders offer a paperless process, wherein you simply get the loan based on your eligibility.

This isn't the case with a loan against property, as you are required to submit property-related documentation. Once submitted, the lender needs to verify these documents and conduct other processes to proceed. This can be time consuming.

• Accessibility

In general, personal loans are considered one of the most accessible options due to their unsecured nature. As an applicant, you can get the loan with ease, so long as you meet basic criteria. In fact, some lenders may even extend pre-approved offers, which can be availed within minutes.

On the other hand, a loan against property is harder to avail as you need to pledge your asset. Even with all the paperwork in order, lenders will take time to process and approve a sanction.

• Tenure options

A personal loan is a short-term financing solution, with most lenders offering up to 5 years as the tenure.

On the other hand, lenders will offer a loan against property with tenure options going up to 20 years.

How to Choose the Right Option for You

Choosing the right option between the two requires you to carefully consider their features, and their differences. To help you make this decision, consider the following table.

So, you must decide based on your needs and your financial capabilities, and pick an option that is easy to manage all through the tenure.