A loan against property (LAP) is exactly what the name implies — a
loan given or disbursed against the mortgage of property. The loan is
given as a certain percentage of the property’s market value, usually
around 40 per cent to 60 per cent.
Loan against property belongs to the secured loan category where the
borrower gives a guarantee by using his property as security.LAP is
pretty similar to personal loan; the only difference being you put a
property owned by you as collateral against the loan. This property
might be confiscated in case you default on the loan. As there is
collateral against the loan, banks feel more secure in lending and hence
the borrower gets some bargaining power as compared to personal loans
which is unsecured.
What purposes can I take a loan against property for?
Loan against Property can be taken for following purposes:
When to take a loan against property?
It’s easier to get a loan against property, then a host of other loans.
Also, Interest rates are far more attractive than other forms of loans,
like personal loans. Also, the property continues to be in the name of
the owner and the asset can be put to a more productive use.
Loans against property is yet to catch up in India, but it’s something that can certainly be considered.
This gives following advantages:
Important Features of LAP
Few features related to LAP which makes this option attractive:
Why you should opt for LAP?
There are three basic reasons which make this option worth consideration-
1. Lower Interest Rate
As it’s a secured loan; you get a bargain of 4 to 5% on the interest
Rate you pay as compared to personal loan. The Interest rate ranges from
11 to 14%. This lower interest rate gives a clear edge to it over
personal loan where you pay interest in the range of 16 to 20%.
2. Longer Tenure of Repayment
This feature further reduces your EMI burden as you can get LAP up to
10 to15 years. When your cash flow is not steady this feature makes the
option even more attractive.
3. Ideal Use of Property
case you own a property and not using it, LAP gives an opportunity of
optimum utilization. You do not lose the ownership and get Funds at
cheaper rates at your disposal.
A loan against property is one
of the best ways to raise money. The only disadvantage of such a loan is
that if the borrower is not able to pay the loan fully, the bank or the
financial institution can take possession of the mortgaged property.
Base your decision on your repaying capabilities.