Personal Loan vs Loan Against Property: When Each Makes Sense

Last month a client called from Satellite with a problem I hear every wedding season. He needed ₹20 lakh by December. His bank had offered a personal loan at about 12% and a loan against his flat at about 10.5%. "Lower rate wins, no?" he asked.

It took one spreadsheet to show him that the "cheaper" loan would cost him nearly ₹6 lakh more. Not because the bank lied. Because the two loans differ in ways the rate alone never shows. This post is that spreadsheet, plus the rules behind it.

The two loans in one table

Here are the same rate cards as a picture. The bars are each bank's published range.

Two things jump out. The floors are close: a top-score salaried borrower gets a personal loan at 10% and an LAP at 10.45% from the same bank. The ceilings are not. A weak credit score on a personal loan can mean 24%. On an LAP the house does the talking, so the ceiling stays near 13%.

Why the rates differ

Banks price what they fear losing. The RBI's numbers tell you how much that is.

• Capital. Since November 2023, the RBI makes banks hold capital against a 125% risk weight on unsecured consumer credit, against 100% earlier. Housing, vehicle, education and gold loans were left out. More capital per rupee lent means a higher rate.
• Defaults. The June 2026 Financial Stability Report puts gross bad loans at 1.7% of unsecured retail loans and 0.7% of secured retail loans as of March 2026. Housing loans are at 0.5%.
• The small-ticket mess. Fintech lenders now hold 56.8% of personal loans under ₹50,000, and the RBI flags 6.4% delinquency there. That is the segment pulling the whole unsecured average up, and your 24% ceiling exists because of it.

So the LAP is cheaper per year because the bank can take the flat. Keep that sentence in mind for the rest of this post.

Run both loans side by side

Put in the amount and the rates you were quoted. The third column is the one most people never ask for: the LAP, but repaid in the same years as the personal loan.

With the defaults, this is the ₹5.7 lakh my client nearly paid. The LAP is 1.5 points cheaper per year, but stretched to ten years it collects interest for twice as long. The LAP repaid in five years is the real bargain, and thanks to the 2026 prepayment rule you can take a 10-year LAP and pay it like a 5-year one, free.

Two more things the calculator shows if you play with it:

1. Rate risk sits with the LAP. Almost every LAP is floating. On 7 October 2026 the RBI raised the repo rate to 5.50%, its first hike since 2023, and SBI's benchmarks moved up 0.25 points a week later. The tip box above shows what one such step does to your EMI. Most personal loans are fixed, so the EMI you sign is the EMI you pay.
2. Below about ₹10 lakh, the LAP's fixed costs eat the saving. Valuation, legal opinion, mortgage stamp duty and a ₹50,000 processing cap do not shrink with the loan. SBI will not even write an LAP under ₹10 lakh.

Three rules worth knowing before you sign

• Ask for the Key Facts Statement. Since 1 October 2024 every retail loan must come with a one-page KFS showing the Annual Percentage Rate, which bundles every fee into one number. Compare APRs, not headline rates. The bank is bound by what the KFS says.
• No prepayment charge on a personal-use LAP. The RBI's Pre-payment Charges Directions, 2025 bar lenders from charging anything when an individual prepays a floating-rate loan taken for a non-business purpose, from any source of funds, with no lock-in. It applies to loans sanctioned from 1 January 2026. Personal loans are usually fixed-rate, so they stay outside it.
• The tax break is narrower than the sales pitch. Under Section 22 of the Income-tax Act, 2025, LAP interest is deductible only if the money went into buying, building, repairing or rebuilding a house, and the self-occupied cap is ₹2 lakh a year. An LAP for a wedding, a medical bill or a car earns no deduction. A business-use LAP can be claimed as a business expense, but note that SBI's personal LAP is for personal purposes only.

When a personal loan makes sense

• You need the money this week. No LAP closes that fast.
• The amount is under ₹10–15 lakh and you can clear it in three to four years. The rate gap times a short tenure is small money; the LAP's upfront costs are not.
• You don't own a clear-title home in a municipal area, or you own one with family and don't want to mortgage it for a consumption expense.
• Your credit score is 750 or better. That is where the 10–12% rates live. Below 700, get the quote first; it may be 18% or more, and then the LAP wins even for small sums.

When a loan against property makes sense

• The amount is ₹25 lakh or more. Personal loans top out around ₹50 lakh and the EMI at 12% over 7 years is brutal.
• You need five years or longer to repay, and you'll use the no-charge prepayment rule to shorten it whenever a bonus arrives.
• The purpose is productive: a house extension, a clinic, education abroad. Something that will still be worth money when the loan ends.
• You can live with a floating EMI that rises 2–3% every time rates move half a point.

Not sure? Answer four questions.

My rule of thumb

Before either loan, look at what you already own. Mutual fund units and fixed deposits can be pledged for a loan that is usually cheaper than a personal loan, needs no valuer, and lets your investments keep compounding. Most clients forget they have this door.

If you still need to borrow: small and short, go unsecured. Big and long, mortgage the property, take the longest tenure the bank allows, and then prepay it like a five-year loan. The flat is your family's safety net. Pledge it for things that build, not for things that are over in a weekend.

If you've been quoted both and want a second pair of eyes on the KFS, send it over on WhatsApp.

Sources

All figures above come from these, checked on 25 October 2026:

• SBI Personal Loan (erstwhile Xpress Credit): rate range 10.00–15.00% over 2-year MCLR, mean ROI 11.54% for Q1 FY 2026-27 — SBI personal loan interest rates; loan limits, tenure, 1.5% processing fee and 2% prepayment charge — SBI Personal Loan product page
• SBI Loan Against Mortgage of Immovable Property: 1-year MCLR + 1.60% up to ₹1 crore, LTV 65%/60%, ₹10 lakh minimum, 15-year tenure, 1% fee capped at ₹50,000, no prepayment penalty, personal purposes only — SBI LAP product page; 1-year MCLR of 8.85% and EBLR of 8.15% from 15 October 2026 — SBI MCLR, SBI EBLR
• HDFC Bank personal loan: 9.99–24% rack rate, fee up to ₹6,500, foreclosure 4%/3%/2% by EMIs paid — HDFC Bank personal loan rates and charges; LAP: repo 5.50% + 3.05–7.50%, fee up to 1% (min ₹7,500), nil prepayment for individual non-business floating loans — HDFC Bank LAP rates and charges
• ICICI Bank LAP: 10.85–12.50% across slabs, linked to repo 5.50% from 8 October 2026, valid till 31 October 2026 — ICICI Bank LAP interest rates
• 125% risk weight on unsecured consumer credit, with housing, education, vehicle and gold loans excluded — RBI circular DOR.STR.REC.57/21.06.001/2023-24, 16 November 2023
• Gross NPA of 1.7% unsecured and 0.7% secured retail (para 1.50), housing NPA 0.5% (para 1.66), fintech small-ticket share 56.8% and delinquency 6.4% (para 1.58) — RBI Financial Stability Report, June 2026, Chapter I
• No pre-payment charges on floating-rate loans to individuals for non-business purposes, para 5(i); no lock-in and any source of funds, para 5(iii); applicable to loans sanctioned from 1 January 2026, para 3(ii) — Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, 2 July 2025
• Key Facts Statement and APR for all retail term loans sanctioned from 1 October 2024 — RBI circular DOR.STR.REC.13/13.03.00/2024-25, 15 April 2024
• Repo rate raised 25 bps to 5.50% on 7 October 2026 — RBI Monetary Policy, Governor's Statement
• Interest on borrowed capital for acquiring, constructing, repairing, renewing or reconstructing a house; ₹2 lakh cap for self-occupied property — Section 22, Income-tax Act, 2025, as reproduced by TaxHeal

The calculator uses standard reducing-balance EMIs and SBI's published processing-fee caps. It ignores GST on fees, stamp duty on the mortgage, valuation and legal charges, and tax deductions. Your bank's KFS is the number that counts.