Are you looking forward to applying for a loan for your personal or business needs? Do you know you can avail a hefty sum as loan by getting a Loan Against Property (LAP)?
What is a (LAP)?
A LAP is a secured loan that is given by the lender to the borrower against an asset that is offered as collateral. Any salaried or self-employed individual can avail LAP by mortgaging collateral.
Most lenders in the market accept the applicant’s land as collateral for land mortgage loan, whether it is used for residential, commercial, or specialised businesses.
Is taking a LAP it a good idea to take a LAP?
Compared to other loan options, a LAP is ideal if you have are residential or commercial property free of any encumbrances. The loan is backed by collateral, your property, and offers a significant sum as a loan at an affordable interest rate. Some banks also provide an overdraft facility to LAPs. By doing this, you only draw from your authorised credit limit, the amount that is required, and only pay interest on the borrowed funds.
Why is LAP better than a personal loan?
Let’s have a look at the advantages of LAP over personal loans:
- Personal loan: As collateral is not a must-have, processing times will be swift. Even though the personal loan will be granted in about a week, its interest rate will be higher than that of a LAP.
- LAP: The approval period may be between 15 to 30 days (approximately). Before disbursing the loan, the lender will verify the legitimacy of the documentation about the property.
Weightage of loan:
- LAP: Depending on the lender’s policies, the loan amount for a LAP will range from 10 lakhs to 5 crores. LAPs would be appropriate if you require a higher amount. Of course, the loan amount will depend on the value of the property.
- Personal loan: Your monthly income will have a profound influence on the loan amount, and your age, credit score, and other criteria will as well. Some lenders could provide a personal loan of up to 5 lakhs.
Highly flexible loan rates:
- Since a LAP is a secured loan, the interest rates are lower than those for personal loans. The interest rate may vary with different lenders. You can calculate the interest rate via a loan against property calculator.
The exceptionally long repayment period and influence on credit score:
- LAP: Depending on the lender and other parameters involved, you can get a loan with a tenure ranging from 5-15 years.
- Personal loan: Your repayment tenure could range from 12 to 60 months.
Making timely payments of your EMI/bills for both, a LAP and a personal loan can make your credit score stronger. This will help you if you ever go for other loans in future.
Here’s why LAP isn’t always a bed of roses:
In most cases, Indians tend to be emotionally tied to their homes, which on occasion, makes it difficult to sell or mortgage to raise money.
In case of LAP: If you default on the loan you took out using your property as collateral, you risk losing the asset you used as security.
In case of a personal loan: The fallout of not making payments includes an increase in the interest payment. It might also harm your credit score.
A LAP is a good option if you need money for your business or personal needs and have a property that meets the LAP processing requirements. The loan process is quick and simple, and the interest rate and monthly payments are cheaper than those for other loans.
Before submitting a loan application, it’s also a good idea to research and compare the fees, margins, and interest rates offered by other lenders.