As the name suggests, Loan Against Property (LAP) is a generic term to imply a secured loan availed by keeping the residential or commercial property or land mortgaged. The amount of loan disbursed is assessed based on the market value of the property. Although, apart from the value of your property, the bank will consider your payment record of other loans (if any), your annual income, nature of employment, savings and the stability of your employment or business.
Nowadays, LAP has become popular as it serves different purposes for individuals as well as businesses. It serves the requirement for the higher education of children, marriage or making a down payment for a home or car or a start-up business.
We have assembled the must-know aspects of Loan Against Property for you:
Benefits of LAP
- LAP comes with easy and hassle-free documentation, convenient repayments through monthly instalment, longer tenure, smaller LAP EMIs compared to the personal loan, tempting interest rates.
- The applicant can continue to inhabit his or her property even after the loan is sanctioned.
- The rate of interest is lower in comparison to personal loans. The interest rate ranges between 10% – 16%, again based upon various banks or other lenders which makes it one of the budget-friendly loans after home loans.
- It offers a great deal of flexibility by offering up to 15-20 years of tenure and easy disbursement of the loan.
Eligibility for Loan Against Property
The loan will only be approved if the applicant and the co-applicant (if any) meet the following criteria:
- The property that is to be mortgaged must have proper documents bearing the proof of registration.
- The applicant must be a Salaried / Self Employed/ Professional individual and a resident of India.
- The age of the applicant must be between 18-70 years.
- The primary applicant must have work experience of 1-5 years. (3 years and above in some cases).
- The eligible salary for few banks is Rs. 25,000 per month and above.
- The lender will consider the credit score, previous bills repayment details and debt obligations of the applicant.
- The eligibility for the loan against property is also estimated based on the value of your mortgaged property.
Type of property against which LAP can be applied
- Self-possessed and/or self-occupied residential property (flat, apartment, bungalow).
- Self- possessed but rented residential property (flat, apartment, bungalow).
- Self- possessed piece of land
- Self-owned commercial property (shop, offices, commercial complex etc).
- Self-owned but rented commercial property (shop, offices, commercial complex etc).
Documents required to apply for Loan Against Property
- Proof of income – ITR of the previous 2-3 years or the salary slips, or Form 16 from the employer, Bank statement of the last few months.
- Proof of Identity and residence – Age and address proof.
- Property related documents – Paperwork bearing the proof of ownership of the property.
- Passport-sized photo of all the applicants
- A cheque drawn in favour of lender for processing fee
- A statement with regards to the purpose of the loan.
Loan Repayment facility
A Loan Against Property bears lower monthly EMI due to long repayment tenure. However, the tenure will be determined upon evaluation of the repayment capacity based upon income history, present loans and repayment history.
Again, a part of the loan can be paid in advance to bring down the amount of EMI. The monthly EMI can be calculated using the online calculator.
LAP is convenient for the end-user but it is to be considered the lender will take possession of the property on failure of repayment of the loan. Hence, considering its long term advantages, accurate planning is required for timely repayment of the EMI to avoid such mishap.