In a country where property is considered one of the most valuable assets, a financial product known as Loan Against Property (LAP) has taken center stage in the world of borrowing and lending.
As the name suggests, LAP allows individuals to leverage the value of their property to access funds for a myriad of purposes.
This secured loan, also referred to as a mortgage loan, has gained popularity in India due to its ability to provide substantial amounts at comparatively lower interest rates than personal loans, making it an attractive option for meeting significant financial requirements.
What is loan against property?
A loan against property is a secured loan offered by financial institutions, banks, and non-banking financial companies (NBFCs) against the mortgage of a residential or commercial property.
The property acts as collateral, providing the lender with a sense of security, and in turn, allows them to offer higher loan amounts at competitive interest rates.
Borrowers can utilize the funds obtained through LAP for diverse purposes such as business expansion, education, medical emergencies, debt consolidation, and home renovation, among others.
What are the key features of loan against property?
Loan amount: The loan amount sanctioned in a loan against property is typically a percentage of the property's market value. Lenders may offer up to 60-70% of the property's value as the loan amount, subject to assessment and valuation.
Property valuation: The property offered as collateral undergoes a thorough valuation process by the lender to determine its current market value. The valuation is based on the property's location, age, condition, and potential for appreciation.
Interest rate: Loan against property usually attracts lower interest rates compared to unsecured loans, making it an affordable financing option. The interest rates may be fixed or floating, depending on the lender's policies and the borrower's preference.
Repayment tenure: LAP comes with flexible repayment tenures, ranging from 5 to 20 years. Borrowers can choose a tenure that aligns with their financial capabilities and repayment preferences.
Loan disbursement: Upon successful verification of documents and property valuation, the loan amount is disbursed to the borrower's bank account. The borrower can then use the funds for the intended purpose.
What are the factors one should consider before availing of LAP?
- Evaluate the amount of funds required and ensure that the property's value is sufficient to meet your financial needs.
- Compare the interest rates offered by different lenders to secure the best deal. A slightly lower interest rate can result in significant savings over the loan tenure.
- Choose a suitable repayment tenure that allows you to comfortably manage the EMIs without straining your finances.
- Check the prepayment and foreclosure charges levied by the lender. Opt for a loan with minimal or no penalty for early repayment.
- Take into account the processing fees charged by the lender while evaluating the overall cost of the loan.
- Understand the lender's eligibility criteria and ensure that you meet the requirements to enhance the chances of loan approval.
Loan against property is a reliable and flexible financing option in India, enabling individuals to unlock the value of their property to meet diverse financial needs. However, borrowers must carefully assess their repayment capacity and property value before going for it.