Getting a loan today to fulfil short or long-term aspirations is much simpler and faster now, thanks to the innumerable financial institutions that offer different types of loans depending on the applicant’s requirement. Experts often suggest borrowers to go for a secured loan if they own an asset that can be used as collateral. Of the assets an individual owns, the property is the most valuable one. So, if a person owns a property, he/she can use it as collateral to get a loan of a higher amount and lower interest rates instead of going for a personal loan. This type of loan is called Loan Against Property (LAP). Let us learn more about how LAP can be the key in meeting diverse financial requirements be it personal or professional.
Loan Against Property
As the term suggests, it is a loan, which a financial institution gives an applicant in lieu of his/her property, be it residential, commercial or industrial. The property acts as collateral and once the loan is fully repaid, the property papers are returned to the owner. In case of any default, the lender reserves the right to sell it to recover the lent capital.
Features of Loan Against Property
The application procedure is quite simple and the amount is disbursed quickly compared to other loans.
These loans are available both in floating and fixed rate of interest types. In case of a floating rate of interest LAP, the financial institution on prepayment of the loan can levy no penalty or charges.
Even when the property is mortgaged, the owner can continue using the property to generate funds. For example, one can give the space on rent and use the money to pay a part of the EMI.
Like a car or machinery loan there is a usage restriction as you can buy only a car or equipment, there is no such compulsion on LAP. The loan amount one receives can use it for business expansion, pay medical expenses, fund foreign education, home renovation or marriage expenses.
If the property has co-owners, all of them need to be co-applicants. Lenders will thoroughly check whether the property is involved in any legal process or not. Disputed properties will not get you a loan.
Financial institutes offer up to 60-70% of the property’s market value as loan amount and because the property is among the costliest asset an individual owns, the loan amount is much bigger than what personal loans offer. The loan amount differs according to the size, condition, and location of the property. You may get tempted to borrow more than you actually need and so, restrain yourself from doing that because bigger the amount you borrow more will be the interest you will pay.
Lower rate of interest:
LAP is available at a lower interest rate usually around 9-15%, which is comparatively lower than the usual 15-22% charged in personal loans.
Longer tenures and comfortable EMIs:
With lower rates and option of taking longer tenures of almost 15-20 years, the EMIs are significantly reduced. The borrower can either pay the loan through EMIs or overdraft facility. Again, the word of caution here is to pay off the loan as soon as possible as more years mean more money gone in paying interest.
A good debt consolidation option:
You can use LAP as a refinancing/ debt consolidation option and pay off your other loans with steeper interest rates.
The applicant needs to be an Indian citizen between 21-70 years with a steady source of income. He/she must own the property and should have a decent credit score.
The applicant must have the property papers that establish his/her ownership.
The applicant needs to submit KYC(Know Your Customer) details such as, identity, age, and nationality proofs like Aadhaar card, Voter ID card, Driving license, Passport, PAN card, etc. For residence proof, one can submit electricity or telephone bills, rent agreements.
The applicants need to give a cheque for the loan processing fees and submit passport size photos.
As income proof, salaried Individuals need to submit salary slips, Form 16, IT returns and if required, bank statements.
The self-employed professionals and business owners need to show registration of the office, profit and loss statements, audit reports, bank statements, IT returns and if required KYC of business co-owners.
LAP unlocks the real monetary potential of the property as the borrower gets a loan while he/she can earn profits using the property for commercial purpose. Though higher loan amount and easier terms make LAP an attractive option to manage monetary requirements, one should always assess the need, repaying capacity, and conditions set by the lender before entering into an agreement for a loan against property.
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