How to choose between LAP and PL?
At one point or another in our lives, we all find ourselves cash-strapped. We might need money to set up or expand our business, pay higher education fees for children, or meet wedding expenses, among others. We prefer to explore the options of loaning against property (LAP) and personal loan (PL) at these critical times. And we choose either of the two without much consideration and understanding in our haste, often overlooking a few important factors. Consider this article where choosing between LAP and PL is your go-to guide. Let's take some key parameters to measure their merits:
Difference Between Loan Against Property and Personal Loan
1.Interest rate
LAP is offered at a 12% – 16% interest rate, while PL is available at 11% – 22%, making the former more attractive. You can also choose from fixed or floating interest rates on the availability of LAP, a choice not available in PL. Check the various personal loan interest rates prevailing in the market.
2.The loan amount and tenure
While you can take advantage of LAP for small amounts, higher amounts are typically preferred because it can be repaid over 5–15 years. The term is usually up to 5 years in the case of PL, making it a preferred option for lower loan amounts.
3.EMI
LAP's longer tenure allows for comfortable loan distribution which leads to smaller EMIs. On the contrary, PL's short tenure often results in elevated EMIs. As the name suggests, EMI or equated monthly installment is a part of the equally divided monthly outgoings to clear off an outstanding loan within a specified time frame. Check the personal loan EMI calculator available on our website. Description: The EMI relies on several factors, such as:
- Principal lend
- Interest-rate
- Lending term
- Monthly / yearly rest period
4.Processing fee
In the case of LAP, the processing fee charged is 0.5% – 1.5% of the amount of the loan, whereas for PL it is 1.5% and 2.5%.
5.Prepayment charges
One of the most crucial areas to be considered by all borrowers before making use of a personal loan is prepayment. "Prepayment is an option provided by financial institutions which allow customers to pay their loan before the expiry of the due date of the loan."Banks charge an extra fee on pre-payment of PL. However, no pre-payment charges are levied for LAPs with floating rates, while banks charge for pre-payment loans for fixed-rate LAP.
6.Loan Disbursal
PL is an unsecured loan which means no collateral is necessary. As a consequence, it can be processed in days. But LAP processing takes time as banks check all documents related to the property. Additionally, if your property has multiple owners, you will need to submit a no-objection certificate from each owner for approval of the loan, further extending the process.
7.Loan repayment
Since PL does not require collateral, your early repayment or lack of such collateral may result in higher interest payments and/or lower credit scores. With LAP, however, the implications of failing to repay are far greater: you stand to lose your mortgaged house! To determine if you will be able to repay the loan before you opt for LAP.
Must Read-Personal loan for individuals with low credit
No comments:
Post a Comment