Loan Against Property: What It Is and How It Works

In the realm of modern financial management, many individuals often find themselves in need of significant amounts of money for different personal purposes or business use. At such times, when the conventional unsecured loan options like a personal loan do not meet your requirements, the best alternative is to turn to LAP or a loan against property. 

If you are not sure what LAP is, how it works, and what its benefits are, then this guide is just for you. Read on!

 

What is a Loan Against Property?

A loan against property, as the name suggests, is a type of secured loan where you can leverage your existing commercial or residential property as collateral and secure financial against it. The property you pledge can be an apartment, piece of land, commercial establishment, etc. 

Loan against property or LAP is also commonly referred to as a mortgage loan. As a borrower, it allows you to unlock the latent value of your immovable assets and get the desired for your immediate financial needs. The loan amount sanctioned is usually a certain percentage of the market value of the property you pledge as collateral. 

And, since the lenders have the security of your property, the loan against property interest rate is usually lower than that of unsecured loans like a personal loan. Another significant aspect of LAP that you must know is that the lenders do not have any restrictions on the end usage of the funds. 

This means you have the flexibility to use the funds for your business or personal purposes. For example, you can apply for LAP to purchase new machinery for the business, go on a luxury holiday with your family members, pay off employees’ salaries, undertake a home renovation, etc. 

 

Working on loan against property

The working of loan against property can be delineated into different stages as follows:

 

• Application

The first step in availing LAP is submitting your application form. Today, most lenders have a simple application process, and you can do it online at your convenience with just a click of a few buttons. You must submit the form along with the necessary documents. 

 

• Property assessment

Once you submit your LAP application form, the lender will assess the request, verify the details and appoint a team to carry out a property assessment and determine the market value of the property you want to pledge. This would include doing a physical inspection of the property and assessing the property-related documents.

 

• Determining the loan value

Based on the lender’s assessment of the property’s market value and their internal LTV (loan to value) policy, the lender will inform you about the maximum amount you can borrow. Generally, the lenders sanction only a certain percentage of the property’s value as the loan amount. The percentage could vary from one lender to another but usually ranges between 40% to 60% of the property’s value. 

 

• Assessing the applicant’s credit profile

Apart from inspecting the property, the financial organisation also does a thorough background check of your financial credentials, including checking your current income, employment stability, debts, past repayment records, credit score, etc. 

Based on the findings of their assessment, the lender will determine your creditworthiness and decide the maximum loan they can offer you. 

 

• Interest rate and repayment tenure

After the credit profile assessment, the lender will process the application further and determine the interest rate based on your creditworthiness, repayment tenure, and market lending rates. Generally speaking, the lenders offer LAP for a longer period of up to 15 years. This gives you enough time to comfortably repay the amount in affordable EMIs (equated monthly installments).

If you can’t decide on the repayment tenor, you can use online tools like the loan against property calculator to your advantage. It is an easy-to-use tool that allows you to calculate and know the EMI applicable to your loan beforehand based on a few inputs like loan tenure, the loan amount you borrow, and the interest rate. 

Thus, you can choose the right repayment term so that the EMI is affordable. 

 

• Drafting loan agreement

After the interest rate is determined and the financial organisation sanctions the loan request, the next step is signing the loan agreement. It is a legal document that outlines the loan terms and conditions, including EMI, fees involved, repayment period, etc. Make sure you read the terms carefully before signing the dotted lines. 

 

• Disbursement

After you sign the loan agreement, the lender proceeds with disbursing the sanctioned amount, and you will get the amount credited directly to your bank account. 

 

• Repayment period

As soon as the loan amount is disbursed, the repayment period begins, and you must continue to repay the monthly installment till the end of the loan term or until you fully repay the borrowed amount, along with the interest. 

 

Conclusion

LAP is an excellent loan option that allows you to utilise your assets and secure funds against them. Make sure that you understand the workings of LAP correctly to get through the application process without any hassles. 

Also, it is better to apply for LAP with only leading financial organisations like India Shelter, which offers loans at competitive internet rates and flexible repayment terms. You can visit the India Shelter website to know more about the loan features and apply online.