Loan against property (LAP) permits you to leverage your property for raising adequate funds for your personal or business requirements without losing out on your property ownership. Due to the secured characteristic of the loan, lower loan against property interest rate is charged by the lenders as compared to the unsecured options. However, there are certain facts concerning loan against property that many are unaware about that generally results in suboptimal choices.
Check out some crucial facts that you must know before you apply for loan against property:
- Funds with zero restriction on end use: Loan against property allows you to leverage your property to raise funds to meet your business or personal needs. Zero restriction on end usage of funds on loan against property makes it an alternative to personal loan and top up home loan.
- Lower rate of interest rate: As loan against property is a secured option backed by security in the form of property, it usually comes at lower interest rates than unsecured options like personal loan. This makes loan against property, one of the cheapest loan options if you are looking for a loan at a lower interest rate.
- Higher tenure of up to 20 years: Loan against property generally comes with a higher repayment tenure of up to 15 to 20 years, which is comparatively higher than any unsecured credit option. As higher tenure equates to lower EMIs, choosing a loan against property may assist in reducing your overall EMI burden.
- Loan proceeds are dependent on LTV ratio: Maximum loan amount in case of loan against property is dependent upon the lender’s LTV ratio. Usually, lenders provide up to 50 to 70 percent of the property’s value in the form of loan, which usually can go as high as Rs 5 crore.
- Reduced emphasis on credit score: For assessing your loan against property eligibility, lenders hardly put much emphasis on your credit score because the pledged securities in case of loan against property act as a backup for the lenders if you default or miss paying your loan EMI. The security available to lenders allows them to become extremely relaxed when assessing your loan against property application.
While loan against property is a better choice as compared to unsecured loan options like personal loan on the grounds of interest rate, repayment tenure and loan amount, the loan falls short in terms of loan disbursal time and document requirement. Keep in mind that lenders require various loan against property documents, which helps them to conduct a technical study to understand the property’s market value. Do note that loan against property holds the risk of your lender taking possession of your property in case of a loan default. Thus, make sure to factor in your repayment capacity using the loan against property EMI calculator for selecting an optimal repayment tenure.