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Financial stability and security are undoubtedly essential in today’s uncertain economic climate. But with expenses constantly on the rise, achieving financial stability can be challenging. Whether it’s for a medical emergency, education, or expanding your business, there are times when you need a large sum of money to tide over. However, traditional loans are often not flexible enough to meet these needs. In such cases, Loan Against Property (LAP) can be a viable solution. In this article, we’ll explore what Loan Against Property is, its benefits, and what to consider before opting for it.

What is Loan Against Property?

As the name suggests, What is LAP? a Loan Against Property (LAP) is a secured loan taken against a property’s value. The property can be commercial or residential and can be either self-occupied or rented out. The loan amount depends on the property’s market value, its age, and the borrower’s creditworthiness. The loan amount generally ranges from 50-75% of the property value. In other words, the lender holds the property as collateral and can recover their dues by selling the property in case of a default.

What is LAP Interest Rates

Compared to other secured loans like personal loans, LAP interest rates are significantly lower. The interest rates usually range between 8.5% to 10%. Another advantage of LAP is that the repayment period ranges between 10-15 years, making it easier on your monthly budget. However, the interest rate on a loan against property is usually higher than that of a home loan as it is considered a riskier loan.

Benefits of Loan Against Property:

  1. Large Loan Amounts

The loan amount for LAP can go up to several crores, and this is one of its significant advantages. This makes it an ideal choice for people who need large amounts of money to fund their various requirements.

  1. Lower Interest Rates

Among all loans LAP interest rates are lower than other unsecured loans such as personal loans because it is backed by a collateral. Interest rates for the same usually range between 8.5% to 10%, which is lower than most other loans.

  1. Longer Tenure

The tenure of a LAP can go up to 15 years, making it an excellent option for those who require a longer repayment duration. This reduces monthly instalments amount and makes the repayment more manageable.

  1. Multipurpose Use

With a LAP, you can use the loan amount for various purposes like expanding your business, investing in real estate projects, funding a marriage or even for your child’s education. Essentially, you can use a LAP for any legal purpose for which you need funds.

  1. Easy Eligibility Criteria

Compared to other loans, LAP has easy eligibility criteria. If you’re over the age of 21 and have a property in your name, you’re eligible for this loan. The lender will verify your income and creditworthiness before approving your loan.

Things to Consider Before Opting for a Loan Against Property

While LAP offers numerous benefits, it’s essential to keep the following points in mind before applying for one:

  1. Loan Amount Versus Property Value

While LAP can finance up to 50-75% of your property value, it’s crucial to remember that the lender can only lend up to a certain limit. Therefore, you need to assess if the loan amount is good enough for you or whether you’ll need to consider an alternative financing option.

  1. Repayment Tenure

Since LAP has a longer tenure compared to most other loans, you need to decide if you’re comfortable with the duration of repayment. While long repayment duration can make monthly instalments more manageable, it can also increase the overall interest paid over the loan duration.

  1. Loan to Value Ratio

The loan to value ratio, normally called LTV, is the loan amount against the property’s value. Be sure to compare the LTV of various lenders and choose one that offers you a higher LTV.

  1. Interest Rate

Although LAP has lower interest rates than personal loans, it still works better as compared to other secured loans like a home loan. Therefore, you must compare the interest rates of various lenders and choose one that suits your financial needs.

The Bottom Line

If you’re looking for a way to finance your varied needs, a Loan Against Property could be an excellent option to consider. With low interest rates, easy eligibility criteria, and flexible usage, LAP can be an excellent tool to manage your finances. However, before finalising a lender, it is advisable to do competitive market research, understand their terms and conditions, and the fine print. In conclusion, use LAP judiciously and responsibly, as it can significantly impact your credit score and financial health.

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