A loan is considered as one of the best options when it comes to borrowing money for emergency needs. Today, most of the banks and financial institutions offer attractive loans which fulfill the immediate needs of the borrower. However, among all most of the borrowers opt for a loan against property or personal loans which are easily available. With this blog, let’s understand in details about both the loans and their pros and cons:
Loan against Property
As the name suggests, a Loan against Property (LAP) is given to as borrower against mortgaging a property. The value is usually 40-60% of the current market price of the property. It comes under the secured category of loans and the property has to be kept under security. The rate of interest on loan against property starts from 10% and the maximum amount which one can borrow is 5 crores. However, the sanctioned amount depends on the value of the property and personal income.
A personal loan does not involve any mortgage of security and is also available instantaneously. But, here the rate of interest is too high and starts at 12-13%. Also, it comes under the unsecured category of loans and hence the maximum amount of money which a borrower can get is 50 lakhs. Because of high interest rates, a personal loan borrower has to pay high EMIs as compared to loan against property.
Purpose of Loan against Property and Personal Loan
A loan against property can be taken for various purposes like expansion of business, medical treatments, home renovation, business needs, and higher education. On the other hand, a personal loan is mostly borrowed to fulfill emergency fund requirements.
Eligibility Criteria for Loan against Property
A loan against property can be taken on any self-occupied property or let-out residential property. It can be your house or a piece of land.
Rate of Interest and Tenure of Loan
The interest rate of Loan against property hovers between 10-16% and hence is considered as one the cheapest loans after home loans. A borrower can get this loan for a period of 15 years.
On the other hand, a personal loan comes with a high rate of interest that hovers between 12-21% and the maximum tenure is 5 years. The loan eligibility is determined by an individual’s income and credit score.
Document required for Loan against Property
The requirement of documents varies from bank to bank. However the common one includes Identity and Residence Proof, Latest Salary-slips, Form 16 (Salaried Individuals), Last 3 years Income Tax returns (self-employed or businessman), Last 3 years Profit /Loss and Balance Sheet(self-employed or businessman), Last 6 months bank statements.
Document required for Personal Loan
In case of personal loan, list of documents includes Income tax returns for the previous two years inclusive of Computation of Income, audit report, balance sheet, profit and loss account, etc., Proof of Office Ownership (self-employed), Proof of Job Continuity (salaried), and proof of investment.
The Final Outcome
Studying the basics of both the loans, loan against property is considered as the best option when it comes to borrowing money. But, remember, don’t miss on your EMIs or else bank will acquire the mortgaged property.