Personal loan v/s loan against property
You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or buying a home that your wife wanted you to buy for her or even finance your child’s wedding. The first thing that would come into the mind of most of us is, ‘Where would I get the money from?’
There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property, or you could take a housing loan for that dream house you want.
How is a loan against property different from a personal loan?
| Loan Against Property | Personal Loan |
| The individual takes the loan by mortgaging the house property | An individual can take a personal loan for personal use without any security or guarantor |
| One of the cheapest retail loans after home loans; usually about 10.50%-16% | Higher interest rates compared to LAP; usually issued at interest rates in the range of 11%-21% |
| Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper | Since rate of interest is high, Equated Monthly Installments (EMI) for personal loans are high |
| Maximum loan eligibility is determined primarily by the value of the property and income | Maximum loan eligibility is determined primarily by an individual’s income |
| Maximum loan tenure for LAP is up to 15 years (180 months) | Maximum loan tenure for personal loan is up to 5 years (60 months) |
| Secured loan | Unsecured loan |
What documents are required for applying for a loan against property?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.
| Salaried Customers | Self Employed Professionals | Self Employed Businessman |
| Application form with photograph | Application form with photograph | Application form with photograph |
| Identity and Residence Proof | Identity and Residence Proof | Identity and Residence Proof |
| Latest Salary-slips | Education Qualifications Certificate and Proof of business existence | Education Qualifications Certificate and Proof of business existence |
| Form 16 | Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet |
Business profile Last 3 years Profit /Loss and Balance Sheet Last 3 years Income Tax returns (self and business) |
| Last 6 months bank statements | Last 6 months bank statements | Last 6 months bank statements (self and business) |
| Processing fee cheque | Processing fee cheque | Processing fee cheque |
The home loan is a loan advanced to a person to assist in buying a house or condominium while a personal loan is a loan that establishes consumer credit that is granted for personal use; usually unsecured and based on the borrower’s integrity…
Purchasing a house can be a valuable form of investment. However, it requires considerable thought and careful financial planning before taking on such a big step. If owning a house is part of your financial goal, then you’ll need to know whether you can afford from your income and savings. You can use our housing loan calculator to find out your monthly installment, total repayment and total interest for any particular housing loan packages.
| Depending on the market value of the property, the margin of financing can go as high as 95% of the property’s value. This is assessed on factors such as: |
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Which is the best option?
The main reason people usually don’t opt to mortgage their house is that they don’t want to take the risk of the bank taking over the property if they are unable to pay the dues. Another disadvantage is that there are no tax incentives while paying the EMIs, unlike in the case of home loans. However, this is only in the case of a salaried person. A businessman can claim tax deduction on the entire interest amount paid on the loan if he can prove that the loan was genuinely used to improve his business.
