What is Loan Against Property & its Objectives?

With a loan against property, you can easily achieve your personal or professional goals. It is a secured loan, and as long as you own the property legally, the process of obtaining the loan is straightforward. This financial instrument is offered by most of the major banks, and its popularity is rising by the day. LAP loans can be utilized for any personal reason, such as to fund a wedding, pay for a child’s education, pay medical bills, or meet any other significant financial need.

Since a LAP loan is a secured loan, most banks and NBFCs provide it with minimal difficulty and processing time. This means that the borrower will have quick access to funds to achieve his or her objectives. With so many companies in the market offering the same product, this loan can be tailored to meet one’s specific requirements. This loan is provided to salaried professionals, self-employed individuals, and NRIs who own or have a family member who owns a property.

The value of your home isn’t the only factor used by institutions to determine whether you qualify for a loan against property. It should be mentioned that lending banks typically sanction loans of roughly 65 percent of the value of your property as a routine procedure. LAP offers a 15-year term, subject to age restrictions, with an interest rate ranging from 12 percent to 16 percent.

Before sanctioning a loan, lenders will typically look into your income, savings, employment history, and other factors. Your property or collateral would be assessed based on its current market worth, and the loan amount would be computed accordingly.

You can use the loan against property feature for the following requirements:

1. Cover the credit demands of trade, commercial activity, and other general business/ professions, as well as their legitimate needs
2. Meet the educational expenses of family members, including close relatives
3. To repair, renovate, or extend a residential or commercial property
4. Purchase/construct a residential house/flat, or a plot of land for the construction of a house/premises for business/commercial usage
5. Repayment of current loans from other banks / financial institutions per existing standards for account “takeover.”
6. Any other reason other than financial speculation of any kind.

Factors determining the interest rate on a loan against property

1. Loan Tenor – The loan against property interest rate charged by banks and NBFCs is determined by the loan tenor. The higher the rate of interest charged, the shorter the repayment period.
2. Credit Score – If you want to get a loan against your house at a cheaper interest rate, you’ll need a credit score of 700 or higher.
3. Kind of property – The interest rate charged by the lender is determined by the market value and type of property.
4. The applicant’s profile – The bank’s interest rate is also determined by the applicant’s age, occupation, income, and other factors.

Advantages of a Loan Against Property 

1. Lower Interest Rate: Secured loans, such as a loan against property, has substantially lower interest rates. Interest rates on a loan against property often range from 12 to 16 percent, while personal loans typically range from 15 to 22 percent. Naturally, each lender sets its rates based on your credit history and other internal policies.
2. Longer repayment period: Because it is a secured loan, lenders are more prepared to provide a longer repayment schedule due to the lower lending risk. A loan against property can have a term of up to 15 years, but a personal loan has a term of only 1 to 5 years.
3. Lower EMIs: Because the loan term is longer, the monthly EMI is reduced, resulting in a lower payback burden over the loan’s whole term as compared to an equivalent-sized personal loan. You can do a quick check using the online available LAP EMI calculators to determine your EMIs.
4. You can acquire a loan for up to 60% of the property’s market value, which can amount to a substantial sum of money.

Characteristics of a Loan Against Property 

The following are some of the most important characteristics of this sort of loan:

1. The loan amount differs from one bank to the next. Typically, a loan of up to 60% of the property’s market value is offered. The sums vary from Rs. 10 lakhs to Rs. 7.5 crores.
2. The interest rates given are competitive for longer payback periods.

EMIs provide for simple repayments.

For this form of loan, most banks just require a few documents. It simply takes 3-4 days for the processing to be completed.

3. The minimum age requirement is 21 years old, with a maximum age of 65 years old.
4. Salaried professionals, self-employed individuals, IT assessors, and others can apply for this loan.

Document required to apply for a loan against property:

1. KYC stands for Know Your Customer, which entails proving your age and address.
2. Proof of earnings
3. Statements from the past six months’ bank accounts.
4. The processing fee cheque
5. Documents proving property ownership.

Home loans are available for properties that are expected to be built in the future, are now under construction, or are ready to move into, whereas land loans are available for the purchase of a plot of land to build a house or as an investment. There are, nevertheless, certain parallels between the two forms of loans.

Before discussing the differences between the two, let’s talk about the similarities first. The due diligence method used by lenders to process both types of loans is substantially the same, regardless of whether you apply for a home loan or a land loan. Furthermore, for both home and land loans, the EMI alternatives offered by lenders and the criteria for co-applicants are similar.

Moreover, the applicant also has the option to foreclosure loan, wherein they can repay the entire loan amount payable before the end of the tenor period. Applicants who apply for LAP from leading financers at a floating interest rate may not have to pay foreclosure charges.

Hopefully, these benefits will help an applicant understand what is LAP and why it is a dependable funding medium for those requiring access to a higher monetary sum.

Additional Read: 10 Things to Know About Commercial Real Estate Appraisal