Loan against Property and its advantages
One of the most important assets of an individual is the property in India which can serve an array of purposes in times of trouble. Most of us take a loan against property for Commercial, Residential and Industrial property. This is a process, wherein a secured loan is provided against the mortgage of the property with a lesser interest and longer repayment option. The loan against property can be used for various purposes such as a business expansion, a wedding, investment in a commercial property or any other greater priority. Basically, this type of loan will fulfill a person’s needs in times of necessity.
Loan against property is given against any type of property such as commercial, industrial or others. The value of the property will determine the loan amount, which in turn will determine the EMI. There are lenders who offer overdraft facility as well.
Who can apply for a LAP?
LAP can be applied by self-employed people if they prefer to set up a new business or require a huge amount of money. In such cases they can opt for a loan without selling or renting out their property. This property will be kept on mortgage and the loan amount will vary around 40-70 per cent of the property’s market value. The expenditures are excluded and LAP is the most secure of all the loans with a lower lending rate when compared to other loans. However, due to the structure of lending by the banks, the LAP is slightly higher than the housing loans.
Requisites to apply for a LAP:
- A person applying for the LAP should have property in his/her name.
- The joint application can be approved by other lenders as well.
- Various banks such as the ICICI, HDFC, Axis, SBI and many others have this facility of LAP with different packages.
- One of the main requisites to apply for a LAP on the lenders part is that there should be any other encumbrance.
- LAP can be applied to a property which is collateral and the repayment term can be as long as 5-15 years.
When to seek a LAP?
A person who has a property and is in the need of a loan, the LAP should be his/her first option. One of the best loans with better features is the gold loan, but due to various sentiments attached to the pledging of gold, people consider acquiring gold loan as the last option. However, in such cases, LAP is the best choice. LAP will be gained on the existing property and the value of the property is released for a productive activity. To sum it up and as mentioned earlier, LAP is the best choice in times of need.
The general reasons for acquiring a LAP are:
- Expanding the business
- For a wedding
- For a child’s higher education
- For urgent medical treatments
Advantages of an LAP |
Disadvantages of an LAP |
| The value of the asset owned is created for a productive use. | In an LAP, a bank does not give loans beyond 60 per cent of the value of a house property and 50 per cent of a commercial property. |
| The processing of LAP is faster than a housing loan, as the property already exists. | The new businesses cannot have access to LAP. It is mandatory that they should have been in existence for at least 3 years. Also if a person is employed for over a year, he/she can get the LAP. |
| LAP allows the partial pre-closure without any penalties. This is perhaps an advantage as the overall interest burden or the tenure of the loan can be reduced by paying small additional amount. | A LAP involves few processing charges in the range of 0.5 per cent to 1per cent depending on the support given by the bank. Also few banks may demand the borrower to run around to get the encumbrance certificate and legal opinion by himself and charge him a little less. |
| A opportunity to re-finance can be used to increase the loan amount for a businessmen who is on a continuous expansion spree. They can use the same property to continuously build the business later as well. | |
| In a LAP, the property continues to be in the ownership of the borrower. In case the borrowers are not able to pay the loan, they can sell the property and then settle the loan. Further this will also leave surplus cash for the borrowers to restart their financial life. |
However there are few alerts which a LAP acquirer should be aware of in case of the following options:
- Fixed Vs. Floating Loan Conundrum
- Assessment of Property Value
- Inadvertent Shift from Overdraft to EMI
- Partnership Business
