Guide to Loan Against Property

Dev Singhraha

Relocation Expert

Need money to invest in a child’s education or business but not sure if the bank will approve your loan or not? Well, there is a key to all your problems. Loan against property is one way to finance your loan when in need.

Loans are generally classified as secured or unsecured. Personal loans and credit cards are usually unsecured as you are not putting any of your assets against it. The banks approve such loans on the trust and belief that you will be able to repay the loan amount in the agreed time limit. On the other hand, loans like housing loans, LAP, car loan etc., come under secured loans as there is collateral involved.

As the loan against property comes under the secured loan, the loan interest is generally lower and the time limit for the repayment of loan can be anything from 5 years to 15 years.

When can you opt for LAP?

Loan against property is given out on the property that you own currently. If you are looking for money to invest in the business and need funds, then you can opt for LAP. The processing for such loans is faster and also the burden of the loan is not too excruciating. The loan can also be repaid quickly as you will be paying only the interest on the principal amount and not the principle money itself.

Though there are some advantages and disadvantages of the same. We discuss them here:

Advantages

Processing is quick
Value of the asset is used for the productive reasons
Partial closure of the loan is allowed without high penalty
If the value of the property has risen over the period of time, then the refinancing option for the loan against the same property is available
The property still belongs to the owner. If in case they are not able to repay the loan, then they can sell the property and settle the loan. This will leave them with surplus cash.

Disadvantages:

If you are starting a business and want to invest in the same with LAP, then you cannot. The banks do not give out LAPs for new business. One must have to be in the business for the past three years.
If you are a salaried person who wants to take LAP, then you must have been employed for over a year.
The loan that is given out against the property is not more than 60 percent of the total cost of the property. In the case of commercial property, it is 50 percent.

Just like the home loans, the borrowers opting for LAP have the option to choose the floating rate of interest or fixed rate of interest. It is better to choose for a fixed rate of interest since the floating interest keeps fluctuating.

There is no concept of EMI in case of LAP, only overdraft facility.

LAPs have seen growth in the past few years. But if you are starting a new business with partners and hope to LAP, then the share must be clearly specified from start to avoid any issue in future.

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