As the name suggests, a loan against property or LAP is a type of secured loan where you use a real estate property as collateral to secure a loan against it. The property you pledge to the lender can be a commercial or residential property. One of the best things about availing of LAP is that the lender has no restrictions on the end usage of the amount you borrow.
You can use it for any purpose you want, such as paying your child’s school fees, increasing business capital, paying employees’ salaries, taking a world tour with your spouse, etc. This makes it a popular choice of loan as people can easily avail the funds they need for an emergency. Generally, the lenders decide the maximum amount you can borrow based on their assessment of the value of the property.
If you are a first-time borrower, here are a few important things you must know about loans against property.
The maximum amount you can borrow
When you apply for any type of loan, be it a home loan in Delhi or loan against property, you would want to know the maximum amount you can borrow. In case of LAP, the lender assesses the value of the property you pledge and lend a maximum of 50% of its value as LAP.
Repayment tenure
The repayment period is a critical factor you must consider while borrowing a loan as it has a direct impact on affordability and EMI. LAP has a longer repayment tenure than unsecured loan options like a personal loan or credit card loan. Generally, financial organizations in India offer LAP for a maximum period of 15 years. This gives you ample time to repay the amount.
Interest rates
When you think of a LAP, you may inevitably think of mortgage loan interest rates. Although the rate of interest for LAP may vary from one lender to another, it is definitely lower than the personal loan interest rates. This means repaying the loan much easier. Today, you can easily apply for LAP at interest rates starting from 6.70% per annum
Documentation
Like any other loan, when you apply for LAP, you must oblige with certain lender-specific documentation. It is an integral part of the application process. Generally, the lenders in India have a simple documentation process for LAP. If you are a salaried individual, you must submit the following documents
· Proof of identity
· Proof of residence
· Income proof
· Property-related papers
· Bank account statement for last six months
showing any payment for any ongoing loan
· A cheque for paying the processing fees
· Passport size photographs
Costs involved
Apart from the interest rate applicable on the LAP, depending upon the lender you may have to bear additional loan costs in the form of loan processing fees, mortgage stamp duty, etc. So, make sure that you compare the offers well from different lenders and choose the one that has the lowest charges.
Loan disbursement
Once you comply with all the formalities, the lender will assess your application and sanction your request. Depending on the quantum of the loan you apply for, the lenders usually disburse the amount in a single installment within two to three working days
Final Word
Now that you are aware of the various aspects of LAP, make sure that you do your due diligence and make the most out of it.