Loans against property (LAP) is a popular method of securing funds amongst Indian borrowers. This type of loan provides easy access to funds for those who own a property. The primary purpose of LAP is to provide financial assistance to the borrower by using their property as collateral. A loan against property is a secured loan with lower rates of interest as compared to other types of loans.
What is a loan against property?
A loan against property (LAP) is a secured loan, in which you pledge your self-owned property as collateral to the lender. The pledged property can be residential, commercial, or industrial in nature. Loans against property can be up to 10.50 crores. The loan amount depends on the value of your property, your income, creditworthiness, and repayment capability.
Although the loan amount is high, the loan tenure can be up to 20 years, which allows for easy repayments. The collateral on the loan ensures that the lender can provide lower interest rates as compared to other loans.
Loan against property interest rates
The interest rate on LAP can vary from 8.50% to 12%, depending on the lender and borrower’s profile. As the loan tenure is long, it is essential to analyze the interest rates before deciding to take up a loan.
Property loan interest rates
Property loan interest rates refer to the interest rate charged by the lender on the loan amount borrowed as collateral. Property loan interest rates can increase in situations when the borrower is unable to repay the loan or increases the interest rate in the market.
LAP interest rates
Loan against property interest rates is the interest rate that a borrower pays to the lender on a loan taken against the property. The LAP interest rates can go up to 14% p.a., depending on the lender, the borrower’s creditworthiness, and the market trends.
Various aspects of LAP
Before taking up a loan against property, it is essential to understand its various aspects. Let us understand them in detail.
1. Eligibility criteria
To be eligible for a loan against property, you must be an Indian citizen and have a property to mortgage. The age limit for the borrower is typically between 21 to 65 years. You should also have a steady flow of income to ensure timely EMIs, and a good credit score can help in securing a loan easily. The eligibility criteria vary from lender to lender, and you should check the same before applying for a loan.
2. Loan amount and property value
The loan amount provided for a loan against property depends on the property’s value, the borrower’s income, credit score, and repayment capacity. The loan amount can range between INR 2 lakh to INR 5 crores, and in some cases, it can be up to INR 10 crores. The amount of loan you can get can be up to 70-90% of your property’s current market value.
3. Repayment tenure
The repayment tenure of a loan against property ranges from 5 to 20 years, and in some cases, it can be up to 30 years. The longer the loan tenure, the lower the EMI amount. The borrower can also choose a flexible repayment option depending on their financial abilities.
4. Fees and charges
The lender can levy various charges like processing fees, prepayment charges, and late payment charges. These charges can vary from lender to lender and are essential to be paid. It is better to compare the fees and charges of different lenders before applying for a loan.
5. Disbursement time
The time taken to disburse a loan against property to the borrower can range from 7 to 14 days, depending on the lender’s processing time and the borrower’s eligibility.
6. Types of Loan Against Property
LAP can be of two types – fixed interest rate and floating interest rate. A fixed-interest rate loan has a constant rate of interest throughout the loan tenure, whereas a floating interest rate loan has a rate of interest that can fluctuate according to the market conditions.
Read Also: How to Differentiate Multiple Mortgage Loan Types: An overview
7. End-use of the loan
The end-use of the loan taken against property can be varied and is not restricted to any particular purpose. The borrower can opt for a loan to finance their business, consolidate their debts, pay for higher education, medical expenses, or any other legitimate purposes.
Conclusion
Loans against property in India offer many advantages to the borrower, such as easy access to funds, lower interest rates, long repayment tenure, and flexible end-use of funds. It is essential to consider various aspects before opting for a loan against property. You should also compare different lenders and their interest rates and fees and choose the one that suits your requirements.
Remember, borrowing a loan against property is a decision that should be taken after considering all factors involved. It is critical to analyze your financial situation and future risks before taking up debt.