A loan against property (LAP) is a secured loan against a property pledged to the lender as collateral. The property can be a house, an owned plot of land, or a commercial place. The lender keeps it as security until you repay the loan. On the other hand, an unsecured loan, as the name suggests, is a collateral-free loan. But then how is an LAP better than an unsecured loan? Let’s find out.
Receive a Large Sanction
A top lending bank in India offers a loan against property ranging from Rs 5 lakhs to Rs 10 crores. The better your credit score and the higher your eligibility, the larger the loan amount you can borrow. Therefore, the amount can meet all your major personal and business expenses. These can include:
- Your child’s education
- Your child’s marriage
- A medical emergency
- Debt consolidation
- Retirement planning
- Business expansion
- Working capital
However, you cannot borrow a large amount by choosing a collateral-free loan. Since it is unsecured, the lender prefers not to take a big risk by lending more funds.
Enjoy a Lower Rate of Interest
Because a loan against property is secured, the risk of the lending bank is lowered. Any losses that it incurs can be recovered by legally claiming your pledged property. Due to this security, the lender is ready to offer a lower interest rate on an LAP. This can lighten the EMI burden, reduce the total cost of the loan and help you pay it off easily.
However, you cannot get this advantage with an unsecured loan which is generally available at a higher rate of interest to balance the lender’s risk.
Get a Longer Repayment Tenure
This is a major benefit that you can avail yourself with a loan against property. The loan tenure you get depends on your eligibility and the chosen lending bank. This is a very helpful feature, especially if you borrow a very large amount. You can then break it into small EMIs over a long duration as per your repayment capacity. Coupled with a low interest rate, this benefit can help you afford the EMIs better. Therefore, you can expect to repay the loan successfully over the chosen duration.
However, an unsecured loan does not come with a long repayment tenure, again because the lender cannot take a big risk. This can make the EMIs hefty and therefore, difficult to pay off on time.
The Security is More Important Than the Credit Score
The credit score of a borrower is always checked before sanctioning any loan. However, in the case of secured loans like a loan against property, the lender gives more importance to the borrower’s collateral than his/her credit score. Even with a fair score, if not excellent, the lending bank can take a risk since it has collateral to balance any losses. So, if you are a loyal customer of the bank and have a moderately good credit score, you may still get an LAP.
However, a credit score is crucial for you to get an unsecured loan because it is all that the lender has to take a risk. Therefore, your loan request may be rejected even if your credit score falls marginally short of the lender’s expectations.
Now that you know the benefits of an LAP over a collateral-free loan, consider borrowing it from a reputed lender whenever you don’t have enough funds at hand to meet a major cash requirement. If you need money specifically to buy a property, go for a housing loan. Consider visiting the same lender’s official website to see home loans kaise milta hai.