Loan against property, commonly referred to as LAP, is a type of loan that allows individuals to pledge their property as collateral and receive money from a lending institution. This form of loan has become increasingly popular in recent years as it offers various benefits to borrowers, including lower interest rates and longer repayment terms. Moreover, it has become an excellent option for people to achieve their dreams without having to put their savings on the line.
Nowadays, getting an instant loan against property has become easier than ever before. With digital banking facilities available, borrowers can apply for a loan online, and the loan amount gets disbursed to their account within a few hours. Also, several online loan marketplaces allow borrowers to compare loan against property rate of interest from multiple lenders, enabling them to make an informed decision.
Loan against property meaning is pretty straightforward. It is a loan taken against the property that an individual owns. This property could be residential, commercial, or industrial. The lender provides funds to the borrower in exchange for collateral, i.e., the property’s title deeds. The loan amount could be a percentage of the property’s market value – this varies from one lending institution to another. Mostly, lenders offer up to 60-70% of the property’s worth as a loan amount.
There are multiple reasons why loan against property works better than other options. Here are some of them:
1. Low rate of interest:
The rate of interest loan against property is lower than most other loan types. This is because the lender views this as a secured loan, which means that if the borrower defaults, they can always sell the pledged property to recover their dues. As a result, the lender is willing to take a lower risk and offer a lower rate of interest to the borrower.
2. Longer repayment tenure:
Lenders typically offer a longer repayment period for loan against property compared to other loans. This could vary from 10 to 15 years or more. The extended repayment tenure ensures that the EMI is affordable for the borrower and does not strain their finances.
3. High loan amounts:
As mentioned earlier, lenders offer up to 60-70% of the property’s market value as a loan amount. This is considerably higher than a personal loan or other unsecured loans. Borrowers can use this amount to achieve their dreams, such as buying a second property or funding their child’s education.
4. Flexibility in usage:
The loan amount received from LAP can be used as per the borrower’s requirement- be it for business expansion, personal uses, or financing educational needs. A person can use it to consolidate outstanding debts, for home renovation, or for planning a wedding.
Despite the multiple advantages, an individual must be aware of the factors that determine their loan eligibility. Some of them are:
1. Property value:
The property pledged as collateral plays a significant role in determining the loan amount. The market value of the property determines the maximum amount that a borrower can avail of as a loan. Therefore, it is essential to evaluate the property’s market value before applying for the loan.
2. Age and income:
Lenders also consider a borrower’s age and income while determining their loan eligibility. If the borrower is younger, has a steady income, and a good credit score, they are more likely to get a higher loan amount.
3. Credit score
The credit score of an individual plays a crucial role in determining their loan eligibility. If the borrower has a high credit score, they are eligible for a higher loan amount with a lower rate of interest.
In conclusion, loan against property works best when the borrower has a solid plan to achieve their goals. It is a known fact that property prices increase over time – this means that equity in the property also goes up. Therefore, if used wisely, the loan against the property can help maximize the value of the property and develop it further.
Borrowers must make an informed decision by comparing the loan against property rate of interest and understanding the terms and conditions before availing of the loan. In conclusion, loan against property is a win-win situation for the borrower and lender as it provides an opportunity for individuals to achieve their dreams while earning a lower risk for the lender.