A Loan Against Property (LAP) is one of the most practical methods to take a loan for expanding business or for funding any other personal expenses. LAP, as the name suggests, is a loan availed of by keeping one’s property as collateral. This is a secured loan and therefore, draws a lower interest rate as compared to other non-secured loans. There are many important questions that cross one’s mind when they decide to avail of LAP. In this article, we answer some of the most frequent questions about Loan Against Property.
How different is LAP from other non-secured loans?
Non-secured loans, such as personal loans, car loans, etc., draw a much higher rate. A Loan Against Property is a secured loan where one mortgages their property against a specific sum of money. Generally, the lenders provide loans amounting to 60-90 per cent of the value of the property.
What kind of property can be used as collateral for LAP?
Any real estate property that is legally owned by you can be used as a mortgage to avail of LAP. The properties that are considered for a mortgage include self-occupied residential/commercial property, rented residential/commercial property, and empty residential/commercial property. However, any residential property built on an agricultural plot of land, hotels, schools, or any real estate that is under legal dispute cannot be used as a mortgage for LAP.
Who is Eligible to avail of LAP?
The eligibility criteria for availing of LAP is simple. You must be an Indian citizen aged 21 and above and must have ownership rights of at least one real estate property. Some leading lenders also offer LAP to NRIs in India.
How to avail of a loan against property online?
Most of the lenders provide online facilities to fill the application for initiating a Loan Against Property. Generally, your profile details and collateral information is required during the filing process. Along with the application form, you will also be required to submit some relevant documents.
What are the documents required for availing LAP?
The documents that are normally required for LAP include proof of identity and residence (KYC), application proof, bank statement of last six months, property-related papers, proof of income, and photographs of all applicants. Apart from this, you might have to submit additional documents as per the lenders’ requirements.
Can one avail of a loan against property without income proof?
Many lenders do not approve a LAP application without income proof, even when you submit your property papers as a mortgage. However, you may be able to avail of a loan against property without income proof if you can convince your relationship manager of your ability to repay your loan. Also, you can increase your chances of loan approval by adding a co-applicant with a regular income while availing of LAP.
What are the factors that affect Loan Against Property Interest Rate?
The LAP interest rate is one of the lowest, second only to home loan interest rates. The factors that affect a loan against property interest rate include the valuation of the property, applicant’s profile, monthly income, credit score, and loan tenor. A longer loan tenor will lead to a lower interest rate.
What is Loan Against Property Balance Transfer?
The Loan Against Property Balance Transfer facility allows one to transfer their outstanding loan amount to another lender. Borrowers generally opt for this facility when they get lower interest rates for the same loan amount or are unhappy with the customer service of the current lender.
What are the Processing Charges?
Lenders charge around 1 to 4 per cent of the outstanding loan amount as processing charges. The charges for inspecting the valuation of property and verification of documents are all included under processing fees for LAP.
Is there any Penalty for Prepayment?
Foreclosure of the loan amount will lead to penalty charges. It is advisable to opt for a floating interest rate instead of a fixed interest rate while availing of LAP. In some cases, lenders might not take any penalty for floating interest rates, depending on the agreement. Sometimes the penalty for prepayment amounts to 1 to 4 per cent of the outstanding loan amount.
Can LAP be availed if the property is owned by more than one person?
If the property which is to be mortgaged has more than one owner then all the owners will be treated as co-applicants for LAP.
How much time does it take for LAP to be sanctioned?
Unlike personal loans, LAP takes a longer duration to get sanctioned. Verification of documents and property inspection for its valuation takes time. You should consider the buffer time while availing of LAP.
For what purposes can one use the LAP amount?
There is no restriction on the purpose for which you may avail of a LAP loan. However, remember that you will have to mention your purpose on the application form.