LAP or Loan Against Property is a secured type of loan that banks, NBFCs and other financial institutions provide against pledged property- commercial or residential. Many prefer to opt for a loan against property rather than taking a personal loan when they need money because of the interest rates. The interest rate for loan against property is quite relaxed as the property acts as security. This is a great tool to fund unprecedented financial requirements while putting the property to use.
The deed of the property remains at the loan provider until the loan is completely repaid. The perk of this loan is that you can continue to use the property after availing the loan.
Before you apply for a loan while pledging your property, there are a few things that you consider.
Valuation of property
When you put up a property as security for availing a loan, your property will be evaluated. After a thorough inspection of the immovable property as well as the required set of documents, the loan provider will ascertain a value to the property. That value depends on the current market price alone and determines the loan to value (LTV) ratio. You should enter the loan arrangement only if the LTV ratio is suitable for you.
Rate of interest
Needless to say, you should go for the lowest interest rate available in the market. For this, keep an open mind while comparing and contrasting various interest rates provided by banks, NBFCs or other finance companies. Make sure you are provided with flexible prepayment terms so that the repayment process is without any problems.
The one applying for the loan also has to be the legal owner of the property they are petting up as security. The loan provider will obviously verify the ownership documents that you submit with the application. If the property in question has two owners, then the other owner also has to sign the loan application as co-owner. Properties with disputed ownership will not be sanctioned for a loan.
Processing and penalty charges
Like any other loan, there are a few processing charges required for the process. In some cases, the processing fees are charged upfront even before the loan is sanctioned or it is deducted from the principal sum. There are stamp duty charges and convenience charges that go under the processing fee. Penalty charges are placed in case of prepayment before the tenure is completed. In some cases, a penalty for delayed EMIs is also charged.
Eligibility and repayment capacity
Besides the eligibility criteria for a loan against property, the loan provider will also check whether or not you are capable of paying back the debt. This will be collected from your credit history, but it doesn’t necessarily affect your eligibility for the loan. Non-repayment of loan within the stipulated time will lead to the loan provider seizing your property.
This is an advantageous loan option because of the lower interest rates and longer tenure which assures low EMIs. Such an arrangement doesn’t create a monthly burden as well as provides for financial needs.