Aug 24, 2023

Loan Against Property: Meaning, Process, vs. Home Loan Comparison

by Godrej Properties Limited

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Securing a Loan Against Property (LAP) can be a beneficial financial move for both salaried employees and self-employed individuals in India. LAP allows the use of property as collateral, offering immediate funding at a lower interest rate than personal or gold loans. Before you apply for a LAP, it is essential to keep certain crucial factors in mind to ensure a smooth borrowing experience.
 

Loan Against Property: An Overview

Loan Against Property meaning entails a secured loan that one takes for various personal or business-related reasons. Lenders provide LAP based on the property's value, applicant's income, and credit history. This multipurpose loan comes with affordable EMIs, making the repayment period stress-free.
 

How to Take Loan Against Property: Points to Consider

Here is a step-by-step loan against property process to follow:

  • Evaluate your property's value to determine the eligible loan amount before applying for LAP; lenders usually offer up to 80% of the property's value as a loan.
  • Check your Credit (CIBIL) Score, aiming for a healthy score of 750 or above to secure LAP at a lower interest rate; improve your credit score by timely debt repayment.
  • Understand the eligibility criteria of each lender to avoid multiple rejections that may harm your credit score.
  • Analyse your loan repayment capacity based on monthly income and expenses using online EMI calculators to select a comfortable EMI amount.
  • Carefully choose the repayment tenure, balancing lower EMIs with higher interest payments for longer terms and vice versa.
  • Prepare all necessary documentation, including KYC, income proof, and property documents, per the lender's requirements to avoid rejecting a loan due to incomplete paperwork.

Loan Against Property vs Home Loan

  • Home loan interest rates are generally lower than LAP. The interest depends on age, location of the property, type of property you pledge, etc.
  • Home loans are for purchasing property, while LAP is a loan secured basis an existing property that can be used for personal/ business needs.
  • Home loans offer up to 90% of property value, while home loans provide a maximum of 60% after evaluation.
  • Home loans have longer tenures (20-30 years) than LAP (max 15 years).
  • Tax exemption is available on home loans but not on LAP (under Indian Income Tax Act).

Conclusion: Make the Right Choice for LAP

A loan against property can be an excellent financial tool for various needs due to its low-interest rates and flexible tenure. However, it is crucial to remember these critical factors before applying to ensure a successful and stress-free borrowing experience. It helps you decide on a loan that aligns with your financial needs.
 

Frequently Asked Questions

Q: Is it reasonable to take a loan against property? 

A: Loan Against Property is a secured loan with a low-interest rate, making it a favourable option for those needing funds.
 

Q: Can I take a loan on my father's property? 

A: You can take a LAP if your father is a co-borrower for the loan.
 

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