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Home >> Loans >> Loans Against Property

Loan against Property (LAP)

If you are looking to fund your business expansion or need money for personal use, en-cash the Equity of your existing property and raise a secured loan at a much lower cost and for a longer time period through loan against property; which enables you to repay your loan in easy installments.  As you would know that you have to pay a lower interest on a secured loan than an unsecured loan. A secured loan is one; which is backed by the security of a marketable real asset. Such loan gives more comfort to the lending institution and therefore is less expensive and even the process of procuring such loan is also faster. Therefore if you are looking for a loan for financing your business or personal requirements (other than for speculative purposes) capitalize on the value of your existing property and raise a loan which has an interest much lower than an unsecured loan. 

What is a Loan against Property (LAP)?

Loan against property is sanctioned and disbursed to you against the security / mortgage of your existing residential / commercial property with a clear marketable title. The loan is given as a certain percentage of the market value of the property subject to your financial eligibility. Since this loan is more long term therefore your financial eligibility is also higher compared to a personal loan or a working capital loan. You also have the convenience of repaying the loan in EMIs over the tenor of the loan. Therefore this kind of loan should be your preference if you are looking to finance your personal or business requirements. Some banks also offer smart loans, wherein a linked current account is opened and whatever money you keep in that account there is no interest charged on the same amount borrowed, thus making this work like an overdraft. You have the money at your disposal and whenever you are not using it there is no interest charged on the same.

Therefore this type of loan is also very helpful if your business is seasonal in nature; since you have a large corpus available to you at any given point in time for your business requirements and whenever you have spare money, you can park the same in the current account and not pay any interest on it. This gives you a lot of flexibility in managing your finances compared to an overdraft facility. The only drawback is that you cannot sell or do anything further with your property, since your property is mortgaged with the bank. Some banks also charge an annual charge; one should enquire about such charges in advance.

What are the purposes for which I can take a Loan against Property?

You can take a LAP for any purpose other than speculative or investments in share or such securities. Banks generally don’t take an undertaking that you would not use this money for any kind of speculative purposes. However they would assess your case against your financial standing, business or try to assess the need. It is also not advisable to take such a loan if such loan is for speculative purposes. You should consult a financial planning expert before taking such decision.

What is Financial Eligibility for LAP

Financial eligibility like any other loan is your repayment capacity and would depend upon the following factors:

  • Your Income / fixed obligations
  • Your current Age and at the time of your age at the time of your last installment
  • Your repayment track records for other loans.
  • Your credit history as per the credit bureau report like CIBIL Trans union or Experian
  • Market Value of the property

What is the tenure of the LAP

LAP can be availed for a minimum period of 5 years and upto a maximum period of 15 years.

Advantages of a LAP

  • The loan comes at a lower rate of interest compared to an unsecured loan (business or personal loan)
  • The sum that you can borrow would be much larger compared to a business or a personal loan
  • The longer repayment tenure give you the comfort to repay the loan in easy EMIS
  • Property ownership still remains with you; while you can utilize its value as per your requirements
  • If the property value rises and you need more funds you can avail the refinancing option and raise more funds from the same property.

Disadvantages of a LAP

  • Compared to an unsecured loan, you cannot do anything with the property e.g.... you cannot sell the property until the loan is fully closed.
  • Banks generally provide upto 65% of the market value of the  property, even if your financial eligibility may be higher the bank would limit the loan to such LTV under the loan against property.
  • This loan is subject to your repayment capacity; therefore you can only raise the loan if you are financially eligible for a loan. The property alone doesn't make you eligible for the loan.
  • In case you are unable to repay the loan; you might lose the property only.