Loan against Property (LAP) refers to a secured loan category somewhat like a home loan where the borrower provides guarantee by using his property as security. The right of ownership of the property is still with the borrower, and if for some reason, the borrower is unable to repay the loan amount, the property can always be sold off to pay off the debt.
The maximum loan amount varies from bank to bank and could range from Rs.2 lakhs up to Rs.100 lakhs. The loan amount depends on the property valuation, your income and of-course your repayment capacity.
The maximum loan amount can come upto 80% to 100% of property value for commercial setups and up to 80% for residential properties (This is really variable as it completely depends on the valuation of your property).
The maximum loan tenure in Loan Against Property cases is 15 years.
Be ready to provide security, collateral or guarantors in order to obtain a Loan Against Property, not to mention a long verification process.
Most banks do not accept properties that are on lease or that are based on power of attorney.
The maximum age limit of eligibility is 60 years.
Loan Against Property features Fixed or Floating interest rates. You also have an option of changing from Fixed to Floating interest rates and vice versa once every year.
A processing fee is usually 0.05% to 3% of the loan amount and is payable upfront. This fee however will be deducted from the disbursal amount payable to you. We recommend that you tray and negotiate a 0% processing fee or atleast a flat discount. Most bankers and agents will be happy to do this to ensure the loan gets sold to you.
You can also prepay the entire loan outstanding anytime after 180 days of availing the loan. Pre-payment charges will be levied accordingly. If you intend to do so, please ask for the pre-payment amount to be waived or a reduction in the penalty charges.
You can also increase or enhance your loan against property eligibility. For that you need to show income of atleast three persons, most preferably a family member or a business partner.
Additional Points To Remember When Considering a Loan Against Property
Compare Loan Against Property offers from 3-4 banks, and select the one which offers maximum benefit to you and your purpose.
Pay special attention to the tenure of the loan. The EMI may be less for longer tenures, but the total interest outflow will be higher.
If its possible, consider pre-payment options. All banks charges 2% – 3% of the loan in case you decide to pre-pay the outstanding amount.
Default in payments results in penalties. It can also adversely affect your credit history and profile. So make sure to make your payments on time. This really plays an important role in getting more loans. Don’t miss payments or you will be penalized.
Make sure that all deals and offers agreed upon are supported by relevant papers. So make sure you always ask for a letter in a banks letter-head mentioning the likes of, exact rate of interests, processing fees, pre-payment charges along with interest-schedule, when you decide to finalize your loan with a particular bank or agent.
Make sure you recheck all terms and conditions, before signing any documents. Please Read the Fine Print.
Do not sign any blank documents. Even if it takes you a few hours to fill-up the form, take your time. Do not leave anything for the executive to fill-up.
Once you have received a loan do your best to pay it back as quickly as possible. Banks make their money off the interest they charge and the sooner you pay back a loan the less money you will have to pay in interest.