A loan against property or LAP loan is a type of loan in India where you get money from a lender by giving them something as a guarantee. This loan is based on real estate, which means you have to give your property as a guarantee to get the money. You have to promise to give your property to the lender for the time of the loan.
The lender keeps the papers and the ownership of your property until you pay back the money. The lender can sell your property to get the money back if you don’t pay or break the rules. This loan has many good things for the people who take it. Some things can help you choose if this loan is good for you and your money.
1. Low Interest Rates
One of the main benefits of a loan against property is that it offers lower interest rates than other types of loans, such as personal loans, credit cards, or unsecured business loans. This is because the lender has the security of your property in case of default, which reduces the risk involved. The average interest rate for a loan against property in India ranges from 8.5% to 12%, depending on the lender, loan amount, tenure, and property value. On the other hand, the average interest rate for a personal loan in India is around 16%, and for a credit card, it can go up to 40%
By opting for a loan against property, you can save a significant amount of money on interest payments, which can help you repay the loan faster and improve your credit score. Moreover, you can also enjoy tax benefits on the interest paid on a loan against property, if you use the loan for certain purposes, such as education, business expansion, or home renovation
2. High Loan Amount
Another advantage of a loan against property is that it allows you to borrow a large amount of money, depending on the value of your property. Typically, lenders offer up to 60% to 80% of the market value of your property as the loan amount. This means that if your property is worth Rs. 1 crore, you can get a loan of up to Rs. 80 lakhs. This can help you meet your big-ticket expenses, such as buying a new car, funding your child’s education abroad, or investing in a new business venture.
In contrast, other types of loans have lower loan limits, which may not be sufficient for your financial goals. For instance, the maximum loan amount for a personal loan in India is usually Rs. 40 lakhs, and for a credit card, it is based on your credit limit.
3. Flexible Tenure and Repayment Options
A loan against property also offers you the flexibility to choose a suitable tenure and repayment option for your loan. You can opt for a tenure ranging from 5 to 20 years, depending on your repayment capacity and preference. This gives you the opportunity to plan your finances accordingly and pay off the loan comfortably. You can also choose from various repayment options, such as equated monthly installments (EMIs), bullet payments, or prepayments, depending on your cash flow and convenience.
On the contrary, other types of loans have shorter tenures and less flexible repayment options, which can put a strain on your budget and affect your savings. For example, the maximum tenure for a personal loan in India is usually 5 years, and for a credit card, you have to pay the minimum amount due every month to avoid penalties and charges.
4. No Restrictions on End Use
A loan against property also gives you the freedom to use the loan amount for any purpose, as long as it is legal and ethical. You can use the loan for personal or professional needs, such as paying medical bills, consolidating debts, traveling abroad, or expanding your business. There are no restrictions on how you spend the money, as long as you repay the loan on time and in full.
However, other types of loans may have specific end uses, which limit your options and choices. For example, a home loan can only be used for buying or constructing a house, a car loan can only be used for purchasing a vehicle, and an education loan can only be used for funding higher studies.
5. Retain Ownership and Possession of Property
A loan against property also allows you to retain the ownership and possession of your property, even after pledging it as collateral. You can continue to live in or use your property as you wish, as long as you pay the loan EMIs regularly and maintain the property in good condition. The lender will only have the right to sell or auction your property in case of default or non-payment of the loan.
This is different from other types of secured loans, such as gold loans or vehicle loans, where you have to surrender the asset to the lender until you repay the loan. This can affect your lifestyle and convenience, as you may not be able to use the asset as you need.
6. Easy Eligibility and Documentation
A loan against property also has easy eligibility and documentation requirements, which make it accessible and convenient for borrowers.
The following requirements must be met in order to qualify for a loan secured by property:
- You must be an Indian citizen who stays in India.
- You need to be in the age range of 21 to 65.
- You should have a regular source of income, either as a salaried or self-employed individual.
- You should have a clear title and ownership of the property to be mortgaged.
- You should have a good credit history and score, preferably above 650.
The documents required for a loan against property are as follows:
- Identity proof, such as PAN card, Aadhaar card, passport, or voter ID.
- Address proof, such as electricity bill, water bill, telephone bill, or rent agreement.
- documents proving income, such as paystubs, bank accounts, income tax returns, or financial statements that have been audited.
- Property documents, such as sale deed, title deed, mutation certificate, or property tax receipt.
Compared to other types of loans, a loan against property has simpler and fewer eligibility and documentation requirements, which can speed up the loan approval and disbursal process.
Conclusion
A loan against property is a smart choice for borrowers who need a large amount of money at a low interest rate, with flexible tenure and repayment options, and no restrictions on end use. It also allows you to retain the ownership and possession of your property, while enjoying tax benefits on the interest paid.
However, before opting for a loan against property, you should also consider the risks and responsibilities involved, such as losing your property in case of default, paying a higher processing fee and prepayment penalty, and maintaining your property in good condition. You should also compare the offers and terms of different lenders, and choose the one that suits your needs and preferences the best.
FAQ
Q.1 What are the benefits of a loan against property?
A loan against property offers low interest rates, high loan amount, flexible tenure and repayment options, no restrictions on end use, and easy eligibility and documentation.
Q.2 What are the risks of a loan against property?
A loan against property involves the risk of losing your property in case of default, paying a higher processing fee and prepayment penalty, and maintaining your property in good condition.
Q.3 How much can I borrow with a loan against property?
You can borrow up to 60% to 80% of the market value of your property as the loan amount, depending on the lender, loan amount, tenure, and property value.
Q.4 How can I save tax with a loan against property?
You can save tax on the interest paid on a loan against property, if you use the loan for certain purposes, such as education, business expansion, or home renovation.