Always wondered which loan is better to meet your money needs? Here’s the answer.
You may have a lot on your mind when it comes to gathering funds for contingencies, financing your business or even renovating your home. The first thing most of us probably ask is, ‘Where will I get the money from?’
There are many ways you could arrange for money, and one of those ways is by taking a loan. You could take a Personal Loan for the amount required, or you could take a loan against your property.
What is a Loan Against Property (LAP)?
LAP is exactly what the name implies – a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property’s market value, usually around 40% – 60%. LAP belongs to the secured loan category where the borrower gives a guarantee by using his property as security.
This loan is one of the cheapest retail loans after Home Loans and usually starts at 10%. Since the rate of interest is lower, LAP’s Equated Monthly Installments (EMI) usually work out cheaper. The maximum loan eligibility is determined primarily by the value of the property and income. So, the loan amount is usually much higher than that provided by Personal Loans. While Personal Loans can be availed for up to Rs. 50 lakhs, the LAP loan amount can go up to Rs. 5 crores.
What purposes can I take a LAP for?
Loan Against Property can be taken for the following purposes:
- Expanding your business
- Sending your children for higher studies abroad
- Renovating your home
- For medical treatments
- Any other personal/business needs
What kind of properties can I mortgage?
You can normally take a loan against your self-occupied or let-out residential property. This could be a house or even a piece of land.
What is the eligibility criteria to get a LAP?
The criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:
- Cost/value of the property mortgaged
- Your income, savings, debt obligations
- Your repayment track record for other loans, credit cards etc. That is, your Credit Score
What are the normal interest rates and tenure?
Interest rates on loan against property range from 10% -16% and the loan tenure can go up to 15 years.
How is a LAP different from a Personal Loan?
| Loan Against Property | Personal Loan |
| The individual takes the loan by mortgaging the house property | An individual can take a loan for personal use without any security or guarantor |
| One of the cheapest retail loans after Home Loans; usually in the range of 10% – 16% | Higher interest rates compared to LAP; usually issued at interest rates in the range of 12% – 21% |
| Since the rate of interest is lower, LAP’s Equated Monthly Installments (EMI) usually work out cheaper | Since the rate of interest is high, the EMIs are high |
| Maximum loan eligibility is determined primarily by the value of the property and income | Maximum loan eligibility is determined primarily by an individual’s income and Credit Score |
| Maximum loan tenure for LAP is up to 15 years (180 months) | Maximum loan tenure for a personal loan is up to 5 years (60 months) |
| The maximum loan amount can go up to Rs. 5 crores | The maximum loan amount can go up to Rs. 50 lakhs |
| Secured loan | Unsecured loan |
What documents are required for LAP?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.
-
Salaried Customers Self Employed Professionals Self Employed Businessman Application form with photograph Application form with photograph Application form with photograph Identity and Residence Proof Identity and Residence Proof Identity and Residence Proof Latest Salary-slips Education Qualifications Certificate and Proof of business existence Education Qualifications Certificate and Proof of business existence Form 16 - Last 3 years Income Tax returns (self and business)
- Last 3 years Profit /Loss and Balance Sheet
- Business profile
- Last 3 years Profit /Loss and Balance Sheet
- Last 3 years Income Tax returns (self and business)
Last 6 months bank statements Last 6 months bank statements Last 6 months bank statements (self and business) Processing fee cheque Processing fee cheque Processing fee cheque
LAP is one of the best ways to raise money. The only disadvantage of such a loan is if the borrower is unable to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. It’s best to base your decision on your repaying capabilities.
Haven’t got any property but need funds? Get a Personal Loan. Here are loans that don’t require security or a guarantor. Go right ahead!