What Should You Choose: Loan Against Property or Unsecured Loan?

Human life is surrounded by an uncounted number of expenses including children’s education, buying a home, expanding business, marriage, vacation etc. All the mentioned events are important and require huge funds. A few years ago availing funds was a tedious task, however, today with the availability of various online platforms and lending options you can get funds instantly. There are different types of secured and unsecured loans available today including Loan Against Property (LAP), Home Loan, Personal Loan, Business Loan and others. The funds can be borrowed based on your loan requirements and loan eligibility.

With various options, it becomes difficult to choose the type of loan to serve your needs in a better way. Hence, when opting for your loan you should consider certain factors such as EMI amount, rate of interest, loan tenor, and Loan to Value (LTV). Although, LAP and unsecured loans have their own set of benefits, they have certain differences in their features that may influence your borrowing decision.

Before going further, you should understand how LAP is different from unsecured loans.

What is a Loan against property (LAP) and a Unsecured Loan?

Loan Against Property: LAP is a secured form of loan which is borrowed from a bank or an NBFC. As the name suggests, you have to mortgage your property as collateral to get this type of loan. The funds are provided according to the value of your property that is commonly known as Loan to Value (LTV). The loan is repaid through EMIs for a particular time period at the predetermined rate of interest.

Unsecured Loans: Unlike a secured loan, you are not required to mortgage your property or any other asset with the bank to borrow funds for these types of loan. Unsecured loans include Personal Loan, Business Loan, Loan Against Credit Card, etc. In order to get maximum funds you are required to have sound and reliable financial record.

To help you understand when you should avail a LAP or an unsecured loan, we have summarized some important differences below:

• Rate of Interest: At the time of lending funds, banks charge certain rate of interest on loan against property based on your credit history, credit score, income and other factors. The rate of interest for LAP is comparatively much lower than unsecured loans. The minimum rate of interest for LAP is 9% whereas for personal loan it is 10.50%. So, if you have a mortgage able property, it is wiser to choose a LAP.
• Loan Tenor: Loan tenor is another factor that affects your borrowing decision. The amount of EMI will be lower if the loan tenor is longer. The maximum loan tenor for a LAP is 25 years. However, loan tenor for unsecured loans is comparatively shorter. Typically it ranges from 1 to 5 years.
• Eligibility: Eligibility of the borrower comprises of certain factors including income, documents, CIBIL Score, credit history and age. In case of an unsecured loan, your eligibility mainly depends on your income (Salary or business revenue) whereas the eligibility for a LAP is also derived from property value.
• Documents: In case of a LAP, you need to furnish more documents as it involves property, whereas for a unsecured loan the requirement for documents is much lesser.

Summarized details of LAP and Unsecured Business Loan

With these differences in mind, you can assess which option is more suitable for you. Based on the specific situation, either of the loan types could be advantageous. You have to choose a loan based on your requirements, eligibility, and capacity to repay.

With these differences in mind, you can assess which option is more suitable for you. Based on the specific situation, either of the loan types could be advantageous. You have to choose a loan based on your requirements, eligibility, and capacity to repay.