A loan against property (LAP) is a secured loan offered by banks, real estate companies and NBFCs in respect of residential or commercial property. These loans are usually offered at a lower interest rate compared to a personal loan or business loan and are issued on time. Anyone with pre-acquisition assets can benefit from such loans, whether they are paid or employed in a business or professional setting. The amount of the approved loan is also higher than that offered in other available options. People can test the loan against property eligibility and thereby move on further with the process.
The need for LAP is increasing among people for three main reasons:
- Cheaper than personal debt;
- The applicant may continue to use his or her property even if a loan has been obtained;
- Loans can be used for a variety of purposes such as unexpected medical expenses, higher education for children and marriage, or starting a business.
Alternatively, existing customers of a bank or real estate finance company do not need to proceed with the document verification process again.
Borrowing property is a blessing for both business owners and earning employees. Self-employed people looking for funds to expand their business can use this facility. Earning professionals who are dealing with a sudden medical problem that may require long-term treatment, including expensive surgery, or sending children to a foreign university for higher education can help the institution earn money. LAP not only leaves the individual savings intact but also comes in cheap EMI with 15 to 20 year payment periods. Low-interest rates on these loans reduce the repayment burden.
While these are the basics of property loans, there are other loan-related factors that applicants should be aware of. These are:
As the amount of loans that can be obtained on the property is high, it is important for the borrower to meet the income requirements required to repay the entire loan. It can be paid for a period of 12 months up to 20 years, or the stay period varies from one lender to another.
loans against property are provided collectively, e.g., immovable property such as residential / built property. Before deciding on the eligibility and value of the loan, your lender will estimate your mortgage. The price will depend on the fair market value, not the past or future value. Real estate finance companies typically provide 50-60 percent of the real estate market value. Therefore, you should analyze the loan-to-value ratio (LTV) provided by your lender.
The lender will only accept the loan after making sure that your property has a clear and marketable title. In addition, partners need to be part of the loan and meet the conditions.
Any mortgage loan comes with a longer repayment period compared to a personal loan. EMIs have spread over the years, and interest rates are very low. Longevity means lower EMIs, reducing the monthly payment burden.
The lender will assess your repayment ability with the help of your income statements, payment history, ongoing loan etc.
In summary, asset lending offers greater flexibility, lower prices, higher loan value, and longer repayment durability and the possibility of end-use. While the long-term benefits of this type of loan make it a much better option than a personal loan, it is important to remember that if the borrower does not repay the loan, his or her rights over the asset are transferred to the lender.