What is the Difference Between a Personal Loan and a LAP?

Personal loans are one of the most popular type of loans availed by people in India as well as abroad. This is because these can be used for a variety of purposes- higher education, marriage expenses, medical emergencies, etc. However, there is an alternative too, which is called a Loan Against Property or LAP.

What is a LAP?

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A Loan Against Property, as the name suggests, is a loan that you get against the mortgage of a property. This property could be a self-occupied or rented house, or even a piece of land.

What makes LAP different from a personal loan?

In essence, a LAP is a type of personal loan. However, it’s a secured loan, unlike the personal loan in which you don’t have to offer collateral.

The following are some of the main differences between a LAP and a personal loan:

Interest Rate: A personal loan is usually quite expensive and comes with an interest rate as high as 24%. However, LAP is a secured loan, which is why the risk is smaller, and hence the interest rate is quite affordable (usually ranging between 11% and 16%).

Loan Tenure: A LAP can have a maximum tenure as long as 15 years. However, it’s difficult to get a personal loan with tenure above 5 years.

Loan Eligibility: When it comes to LAP, the banks consider the property value for loan eligibility, and you can expect to get 40% to 60% of the property value in the form of the loan. However, when it comes to personal loans, then your monthly income becomes the primary factor.

Risk Factor: A personal loan is risky for the bank. However, a LAP is risky for the borrower. This is because if they are unable to repay the loan, the bank can seize the property if need be.

Despite the risk factor, a LAP is usually a good option over a personal loan. This is because it’s easier to get and has a low interest rate as well.