Loan against property or LAP is a type of loan issued by the borrowers from banks and other financial institutions against collateral which is their own property or residence. It acts as a monetary tool helping an individual to accomplish their goals, desires, and requirements with utmost simplicity and ease. A simple loan may not be enough to meet all the heavy requirements of an individual; this is where LAP comes in rescue. Lenders are coming up with ingenious economic tools to cater to the evolving needs of their borrowers.
Besides, other loans, LAP in recent times, is progressing with enormous popularity. The market rate of loan against property is as high as Rs. 2.5 lakh crore per day.
Loan against property or LAP is also termed as Property mortgage loan or Mortgage loan against property as it involves the use of the property as collateral.
The loan can be classified as:
Land mortgage loan:
This loan is also termed as a loan against the land. This further can be based on whether an individual decides to mortgage a loan against agribusiness land or a loan against a plot.
Home mortgage loan:
Under a home mortgage loan, an individual is required to mortgage a loan against residence instead of a land.
Individuals are still needed to understand that there is a basic difference between a mortgage loan or loan against property and reverse mortgage loans. Under the reverse mortgage loan, the borrower is required to offer his/ her existing residential home as collateral, against which he/ she receives a usual quotation of money for a certain period. This loan money is based on the price of the estate.
Wherein, under the loan issued against property, the loan is issued to the borrowers based on the agreement, and then the borrower repays the loan amount within the chosen period to preserve the possession of the estate.
Properties that can be approved as collateral can be any of the prevailing properties of the individual. These include any open space, a portion of farming land, or barren land in the name of the individual. A dwelling or marketable occupied property, a building, or a flat in the name of the individual is all acceptable.
Time Period and Interest Rate:
The lenders usually offer a huge loan amount ranging from as high as 80% to 60% of the property’s demand value. Formal banks and institutions also provide a comfortable period that can range between 2 years to 20 years, for people on regular salary and tenure of about 18 years for those who are self-employed, to pay back the total loan. Since loan against property or LAP come under the secured loan, the rate of interest which is provided is also quite low as compared to loans issued under unsecured loans.
There are certain eligibility conditions that an individual must fulfil to get availed for a loan against property. The conditions and criteria differ from one lender to another.
Some common criteria to qualify the loan sanction process are:
- The age of the individual. Generally, the age of the borrower should be above 18 years.
- The loan against property, the tenure of repayment, the interest rate might vary for self-employed individuals and those working on a salary.
- One of the most important and foremost factories for issuing LAP is the credit score and profile of the borrower. A good credit score, along with a good credit history, would automatically satisfy the lender about the borrower’s profile. It will make the lender feel secured to issue loans to that individual.
- Last but not least, the property value in the market also forms crucial criteria that a lender considers before taking any final decision on a loan sanction.
It is quite simple and manageable to maintain a good credit profile and hence to pass the eligibility criteria for loan against property. A few documentation and paperwork would be required for the final LAP authorization.
LAP is generally issued for productive and heavy activities which include expansion and growth of a business.
- An unused asset can be utilized to get earnings to cover up enormous financial crises.
- A loan against property is better than other sorts of loans such as a housing loan as its procedure is much faster and easier.
- LAP also provides a re-financing selection where the individuals can ask for a raise, if, the importance of the residential property rises over time. This again is very advantageous to people in business who are willing to expand their industry.