Loan against property also referred to as ‘LAP’ is one of the suitable ways of loan as the investor can use their property as security while raising a loan. LAP is sometimes necessary in cases like medical treatment, children’s education, marriage, or starting a business. Lenders determine the loan value for mortgage transactions through the current market assessment of properties used as collateral. This article will explore everything about loans against property, their types, benefits, and a lot more.
What is a Loan Against Property?
A Loan Against Property (LAP) is a secured loan where you pledge your residential, commercial, or industrial property as collateral to borrow funds from a lender. Since it is backed by an asset, this type of loan generally comes with lower interest rates compared to unsecured loans like personal loans. The amount you intend to borrow usually depends on the market value of the property, which is evaluated by the lender. Typically, you may get up to 60-70% of your property’s market value as the loan amount.
Types of Loan Against Property
Loan against property comes in different forms based on the borrower’s needs and the lender’s offerings. The common types include:
- Self-Occupied Residential Property Loan: This type of loan is taken by individuals who own and live in the property they are using as collateral. Since the borrower resides in the property, lenders may offer lower interest rates and favourable terms.
- Commercial Property Loan: This loan is secured against commercial properties such as shops, offices, or retail spaces. It is typically used by business owners or investors to fund business expansion, purchase new property, or meet working capital needs. Interest rates and loan terms vary based on the location, market value, and income potential of the commercial property.
- Loan Against Rental Property: In this type of loan, the borrower pledges a property that generates rental income, such as a house, apartment, or commercial space rented to tenants. Lenders consider rental income as a factor while determining loan eligibility. This loan is beneficial for property owners who want to leverage their rental income to access funds without selling the asset.
- Industrial Property Loan: This loan is taken against industrial properties like factories, warehouses, and manufacturing units. Businesses typically use this loan for expansion, upgrading machinery, or boosting production capacity.
- Loan Against Land: This loan allows borrowers to use a piece of land they own as collateral. The land must meet the lender’s eligibility criteria, such as being non-agricultural, free from legal disputes, and having clear ownership documents.
Benefits of a Loan Against Property
The benefits of a loan against property are as follows:
- Lower Interest Rates: As the loan is secured by a property, lenders offer lower interest rates compared to unsecured loans like personal loans. This makes it a suitable option for those looking for affordable financing.
- Higher Loan Amount: With LAP you can borrow a large sum of capital based on the value of your property.
- Longer Repayment Tenure: LAPs usually come with longer repayment periods, which can go up to 15-20 years. This helps reduce the monthly EMI burden, making it easier to manage your finances.
- Quick and Easy Process: LAP is often quicker to process than unsecured loans, as the primary collateral is your property. The paperwork and approval process may be more straightforward, ensuring faster access to funds when you need them.
- Tax Benefits: Depending on the purpose of the loan, you may be eligible for tax benefits under Section 37 of the Income Tax Act. If the loan is taken for business purposes, the interest paid may be deductible.
- No Need to Sell Your Property: Unlike selling property for funds, LAP allows you to retain ownership and use the property while you continue to pay back the loan.
Loan Against Property Interest Rate
The interest rate on a loan against property typically ranges from 8% to 15%, depending on factors such as the lender, the loan amount, and the property value. Securing a loan with a high-value property and a good credit score may help you qualify for a lower loan against property interest rate.
A strong credit score, stable income, and ownership of a high-value property can significantly improve your chances of getting a lower interest rate. Moreover, salaried individuals or professionals working with reputed firms or government organisations may receive better terms, due to income stability.
Conclusion
Loan against property is a flexible and cost-effective financial solution for individuals needing substantial funds. It offers lower interest rates, higher loan amounts, longer repayment periods, and easy access to funds. Whether you’re a salaried employee or a self-employed individual, you may be eligible for a loan against property to meet your financial requirements without the need to sell your property. Make sure to compare different lenders and understand the loan terms to make an informed decision for your needs.
