Will a Loan against Property Help in Getting Smaller EMIs as Compared to Other Loans?

by Adrian J. Elliott | Friday, Feb 22, 2019 | 551 views

You may need funds for various objectives, such as children’s education, vacation, or business expansion. Until a few years ago, availing of funds was difficult. However, lenders today offer various types of loans to meet your funding requirements.

Financial institutions offer secured and unsecured loans, such as business, home, personal, and other types of loans. You may avail of one or more of these credit facilities based on your eligibility and personal requirements.

With the availability of multiple options, making the right choice also becomes confusing. Considering some factors, such as the equated monthly installment (EMI), loan tenure, interest rates, and loan to value (LTV) will help you make an informed decision.

Secured credit facilities like a loan against property (LAP) have certain benefits. On the other hand, unsecured facilities like personal loans have their pros and cons. Here is an insight into the LAP and other unsecured loans for further understanding.

Loan against property

LAP is a secured loan available from banks and non-banking financial companies (NBFCs). To avail of the funds, you need to mortgage your property against the amount. The loan amount depends on the property value, which is known as the LTV. Based on the tenure and the loan against property interest rates, the amount is repaid in pre-determined EMIs.

Unsecured loans

When you avail of such types of loans, you do not have to mortgage any property or another asset. Some of these include personal loans or facilities against your credit card. You need to have a strong credit history and a high credit score to be eligible for such unsecured loans.

LAP vs. unsecured loans

Although both these options have their benefits and disadvantages, below are four differences between the two.

1. Interest rates

Because LAP is a secured loan, the interest rate on property mortgage loan is lower. Lenders assume a higher risk with unsecured loans and levy a higher rate of interest. It is advisable that you apply for a LAP if you are able to mortgage a property. Moreover, the EMI is lower when you avail of a LAP.

2. Tenure

When you avail of a loan for a longer tenure, the EMI is lower. The maximum tenure for a LAP is 15 years while unsecured loans are available for shorter durations. Therefore, if you want to apply for longer loan tenure, choosing mortgage loan against your property is advisable.

3. Documentation

The documents needed for an unsecured loan are lesser. On the other hand, LAP requires meeting more documentation requirements. This is because in addition to your documents, you need to furnish the loan-related documents. Therefore, the processing time for a LAP may be more than that for an unsecured loan.

4. Eligibility

To determine your eligibility, lenders consider your income, credit score, and age. The important eligibility criteria for unsecured loans are your credit history and income. In comparison, the property value is of greater importance when applying for a LAP. If you have a higher credit score, can afford high rates of interest, and do not have an asset, you may avail of an unsecured loan.

Based on the aforementioned points, you may consider a LAP or unsecured loan. Furthermore, which of the two options is suitable depends on your requirements and personal situation.

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