Loan against Property overview

What is Loan Against Property?

A loan against property (LAP) is exactly what the name signifies. It is a loan given against a residential or commercial property that you own and offer as security to the bank/lender. The property’s market value is assessed and the loan is given as a certain percentage of the property's current market value. The loan amount typically ranges from around 40 per cent to 60 per cent of the market value.

Benefits of LAP

Low interest rate: A loan against property is one of the most popular retail loans available in the market due to its comparatively lower interest rates and higher loan amount disbursal (depending on the property).

No restrictions on end use: You can use the money for any purpose you like including expanding your business, consolidating debt, funding a child’s wedding or studies, or for any large personal expense like medical treatment.

No additional collateral required: While a personal loan also does not require collateral, a LAP is a much cheaper loan as your existing property is used as  collateral.  

Utilize an existing idle asset: Moreover, you can use this idle asset to raise funds at a lower interest cost than taking an expensive personal loan.

How to get an LAP

LAP is widely offered in the larger cities in the country, and you can apply for a loan against property in any of the leading private / public sector banks and NBFCs in India. You could visit your nearest lender for advice on whether you qualify, the documentation required, and for help in the application process. If you have a good relationship with your bank or you are an existing customer, then you could be eligible for more favorable offers, like no prepayment / part prepayment penalty, lower interest rate, etc. You could call up the bank’s customer care and have them contact you with the most suitable offer.

Applying for a loan against property is a great way to get a loan to meet your immediate financial needs without selling off any assets. You get a much larger fund, depending on the kind and value of property you mortgage. This way, you get to keep your property, which, under normal conditions, would naturally tend to accrue in market value over the years. Hence, mortgaging a property to acquire a loan is one of the best forms of loans as it comes with lower interest rate than, for example, a personal loan or credit card.

Keep in mind that there should be no legal or financial encumbrances on the property you are about to mortgage. There might be certain restrictions regarding in which city/town the property is located. Also there might be regulations concerning the other co-owners of the property and co-applicants for the loan.

In general, a Loan against Property is a good way to raise funds at a relatively low cost, while making use of an existing asset that you own. If you make all your repayments on time, this kind of loan could be one of the more economical ways to raise money.