While money is not what life is all about, it certainly makes living easy! Sometimes you need it to keep your business’s cash flow positive and sometimes you need it for paying off medical bills. Or, you might need funding for your daughter’s higher education or to take that dream vacation. So, in the age of instant gratification, availing loans to fund various needs and aspirations has become a norm. And financial institutions are all set to cater to it. Now, personal loan (PL) and loan against property (LAP) are two popular loan types that most people go for. However, choosing one of them can be difficult unless you know about their pros and cons. So, read on to get enlightened.
The basics of personal loan and loan against property - Personal loan or PL–This is taken mostly by salaried borrowers and requires no collateral. Due to the lack of security backing, these loans are generally smaller in size and are used mainly for financing personal needs. The Hero FinCorp personal loan, which is from a company that is rated AA+ by credit rating agencies, is a favorite among borrowers.
- Loan against property or LAP– It requires the borrower to furnish security in the form of land or residential or commercial property. Since the loan amount sanctioned is secured against the property being mortgaged, borrowers can get a substantial sum for bigger needs like business improvements and expansions.
Also Read: Beginner’s Guide For Taking A Loan Against Property Key differences between PL and LAP Getting a loan against property is generally a slower process than a personal loan, as it has the additional steps associated with the legal and technical assessment of the land or house that is considered as the collateral.
Since personal loans are unsecured, they attract a higher interest rate. However, if you are planning to take one, a personal loan calculator
can quickly give you an estimate of what you will pay as interest. The
loan against property interest rate is generally lower due to the collateral’s presence.
- Payment tenure and amount acquirable
Since the loan against property amount is proportional to the value of the asset being pledged, it is considered a secured loan, and hence,a higher loan amount is usually disbursed. Also, the payment tenure is longer than in PL, and can last as long as fifteen years.
Looking into
Hero FinCorp personal loan details
can give you an idea about how much loan you can get along with the repayment terms.
- Eligibility of the borrower to avail the loans
While monthly income is considered as a factor for approving a personal loan, a LAP applicant is judged based on their repayment ability and property value, while also taking into account the age and profitability of the business to be funded.
Also Read: Benefits of taking a Loan Against Property Documentation necessary for applying The following documents are commonly required for both LAP and PL. LAP, however, also requires the applicant to submit their property papers for evaluation by the lender.
- Filled-out application form with a recent photograph.
- Income proof
- Financial proofs such as bank statements and income tax returns that provide the lender with an idea about the financial health of the applicant
- Proofs for address and identification
Also Read: Instant personal loan is the best option for emergency fund requirements So, which loan wins? You should choose the loan based on your requirements and status. However, note that before you get a LAP, you need to be sure that you can pay it off on time, as you stand to lose your mortgaged property otherwise. Even though a
personal loan gets processed faster, these days, leading financial institutions are speeding up the process of LAP disbursal as well.
Also, note that loan against property especially makes sense for self-employed professionals and business owners, who might have a long-term goal in mind. In addition, personal loans are a good bet if you have no asset to hypothecate or have a
decent credit score, which can lower the interest rate charged. So, assess your situation, needs thoroughly, and then choose a loan that is most suitable.
