Difference between Loan against Property and Personal Loan
By Anupama Deshpande | Sep 12, 2018

Loan against Property vs Personal Loan - Whenever there is a need of urgent funds, two main loan alternatives that come in your mind are Personal Loan and Loan against Property. While Personal Loan is an unsecured loan, Loan against Property is a secured one. There are several differences between Loan against Property and Personal Loan which are outlined in this article.

There are several differences between Loan against Property and Personal Loan which are outlined below:

• Loan against Property (LAP) is offered against a property that is already in your name. Banks prefer to extend credit against a property which is under your possession i.e. against under self-possessed property.
• In such type of loan, the property of the borrower is mortgaged and a fixed percentage of the prevailing market value of the property is offered to the borrower as a loan which usually, ranges between 60% and 70% of the value of the property.
• Loan against Property (LAP) is categorised as a secured loan.
• There are no restrictions as to how and where the funds taken as loan can be utilized in case of Loan against Property (LAP). It can be used for any business purpose, for personal use such as marriage, children education, foreign trip, etc.
• It is preferred for emergencies and other short term purposes. It is a more affordable alternative to a personal loan as interest rates are much lower than those of personal loans.
• The amount of loan under Loan against Property (LAP) will be much higher when compared to Personal Loan.
• The loan tenure under Loan against Property (LAP) is up to 15 years which is much higher than Personal Loan.
• The interest rate under Loan against Property (LAP) is also much lower than that offered under personal loan.
• There is no prepayment penalty for this loan which is applicable in case of the Personal Loan.

Suggested reading Documents Required for Loan against Property (LAP)

• Personal loan is a type of loan used by the people for meeting the personal needs of the borrower.
• Personal Loan is categorised as an unsecured loan which means that there is no collateral being mortgaged by the bank and is given on the personal guarantee of the individual.
• There are no restrictions as to how and where the funds taken as loan can be utilized in case of Personal Loan. It can be used for any business purpose, for personal use such as purchase of any asset, marriage expenses, medical emergency, children education, foreign trip, etc.
• It is preferred for emergencies and other short term purposes. It is very affordable and easily offered to the persons having regular income.
• The amount offered under Personal loan is lower when compared to Loan against Property (LAP). The amount of personal loan ranges from Rs. 20,000 to Rs. 20 Lakhs. It also depends on applicant's credit score.
• Personal loan is a short tenure loan. Banks usually provide this loan for minimum 1 year (12 months) to maximum 3 years (36 months) to 5 years (60 months).
• The interest rate under personal loan is higher than that offered under Loan against Property (LAP). Personal loans usually have fixed interest rates.

Interested to know: Tips to Choose Right Personal Loan for You