Differences between a personal loan and Loan against Property

In LAP, a person takes a loan by mortgaging the house property whereas in a personal loan no guarantee or security is required. In other words, loan against property is a secured type of loan whereas a personal loan is an unsecured form of loan.

LAP is one the cheapest retail loans after home loans. It charges interest rates around 12-16 percent. Personal loan, on the other hand, is an expensive loan with interest rates ranging within 16-21 percent. Personal loans charge a higher rate of interest because there is no security against these and thus pose a greater risk to the lenders.

Since the rate of interest is lower in case of loan against property the equated monthly installment for loan against property is lower than that for personal loan.

In LAP, the maximum loan amount you are eligible for depends upon the value of the property held as security and your income while in personal loan this amount depends solely on your income.

Maximum tenure for a LAP is up to 15 years and that in case of a personal loan is up to 5 years.

LAP is a better option in terms of cost. It charges you a cheaper interest rate. However, if you default on your LAP repayments, the bank or the financial institution will take possession of the mortgaged property. This risk is not present in personal loan. Therefore, your decision should depend on your repaying capabilities.