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Loan Against Property

Loan against property is exactly what the name implies. It is loan granted against the mortgage of property. The loan amount ranges from 40% to 60% of the valuation amount. Loan against property is a secured loan as the borrower guarantees that default, if any, can be compensated by his property. The loan tenure can be up to 15 years and the interest ranges between 12% to 15%. Loan against property can be taken for various reasons:

  • Working capital requirements
  • Purchase of machinery
  • Purchase of commercial property
  • Closure of existing high-cost debts
  • Buying a new property
  • Education of children
  • Wedding
  • In debt consolidation
  • Any other personal, professional need

LAP is a better option compared to personal loan as the rate of interest is lesser in case of LAP (being a secured loan).
LAP can be further classified as:

  • Loan against residential property – this loan can be taken against your residential property that is self occupied, rented or vacant
  • Loan against commercial property – this loan can be taken against commercial property that is self occupied, rented or vacant
  • Loan against industrial property – this loan can be taken against industrial property that is self occupied, rented or vacant
  • Loan against open land – this loan can be taken against open land which can be residential or commercial
  • Balance transfer – this loan can be availed to reduce the ROI of current running loan by transferring it from the present financial institution
  • Balance transfer and top up – this loan can be availed to reduce the ROI of current running loan by transferring it from the present financial institution and also giving further enhancement on the takeover loan
  • Top up – One can get an enhanced or additional amount from the existing financial institution on the running LAP

Some set criteria that are taken in to consideration by the lender are:

  • Credentials of the borrower (Income, Age, Duration, CIBIL, KYC etc)
  • Credit history
  • Other loans that borrower is paying (or liable to pay)
  • Type and age of property

Since the home loan is generally repaid over several years, lenders prefer that the borrower take an insurance to protect this loan. While planning to avail LAP, one must take in to due consideration:

  • Cheapest deal (interest rate) may not be the best as there are other aspects to be considered.
  • Experts suggest that a floating rate of interest should be preferred over a fixed rate of interest.
  • Go for a lender who offers a daily reducing balance instead of monthly. This will matter in case you want to make a partial repayment.
  • Take opinion of others but ultimately understand the mathematics yourself before you take a decision. Other people may not be as wise as you are!
  • Consider online feedback on lender and mark the oft-repeated problems and good points. Most feedback is credible but some miscreants can try to manipulate to stain the reputation of a lender.
  • Consult good professionals like Chartered Accountants, Tax Planners etc.
  • Ascertain that the lender will provide good services. Service quality can be a challenge. The product may be lucrative but at the same time services can be a turnoff.
  • Compare a few top performers and choose the one who suits your requirements best.
  • Finally, do not let your property be undervalued. It is suggested that you get the best valuation by trying a few options at hand.
  • A major drawback of LAP is that if borrower is not able to repay the loan fully, the lender can take possession of the mortgaged property.

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