People borrow money for various reasons. It might be for your children’s education or the house’s renovation or marriage. It can also be a loan for your start-up or purchasing a vehicle or buying a new home.

There are several ways to arrange funds, and one method is to take a loan. You can either take a personal loan or loan against property(LAP).

In this article, you will get all the information related to Loan Against Property(LAP).

What is a Loan Against Property(LAP)?

LAP is a loan that you get by pledging your commercial/residential property. The LAP is a secured loan as the borrower takes a loan on the basis of his land. The property works as insurance in this case. You will get a loan as a certain percentage of the market value of your property(between 40% and 75%).

Documents Required for LAP:

For salaried employees:

• Age proof(PAN/Passport)
• Address proof(Driving license/Ration Card/Electricity bill)
• Education qualification
• Last salary slip( in some cases they ask for salary slip of last 3 months)
• Bank statement of the last 6 months
• Photocopy of the property document

For Self-employed/professionals:

• Age Proof(PAN/Passport)
• Address Proof(Driving license/Ration Card/Electricity bill)
• Education Qualification
• Document of your business
• Income tax return(last 3 years)
• Balance sheet, profit and loss account (audited by CA)
• Bank statement of the last 12 months
• Photocopy of property document

Eligibility conditions for LAP:

• Different banks have different eligibility criteria. These are a few common factors applicable to all the banks:
• Income, savings, and the mortgage bonds of the borrower.
• Price of mortgaged land
• Borrower’s track of redemption of other loans, credit cards, etc.

Under what reasons should I take a loan against property?

You can take a LAP under the following circumstances:

1. Funding your children’s education
2. For your son/daughter’s wedding
3. For Business Expansion
4. Financing Medical Treatment
5. For Renovating your house

Which kind of land/property one can mortgage for a LAP?

You can take a loan for your commercial/residential property. It could be a building or a patch of property. You must have all the documents of that property.

Interest Rates and Extra Charges:

In the LAP there are two kinds of interest rates: 1. Fixed-rate 2. Floating-Rate

In Fixed rates, your payable interest will be constant for the entire tenure. Whereas in Floating rates, it changes with RBI’s rules and regulations. It changes with market fluctuations. It is always advisable to search for the information online. You can go to the websites of banks, compare the interest rates through their EMI calculators. A low-interest charging bank doesn’t need to give you the longest tenure.

If you intend to take this loan for a longer period, then a safer alternative could be your fixed interest. Bear this in mind and read the Terms and Conditions. Besides the interest, there are other costs for each debt, which often relate to a LAP.

Always check the following charges:

1. Processing fees
2. EMI refund fees
3. Foreclosure fees
4. Fines
5. Partial Prepaid fees

Other Formalities for Application:

Before approving the loan, your lender may take time in evaluating the land/property. You need to show all the documents to the bank. Lenders check everything to test your willingness to pay the loan amount. They can ask for your company’s balance sheet, income tax returns, etc.

For salaried employees, they ask for salary slips. These are small formalities banks or financing companies generally do.

Other facts about Loan Against Property:

1. LAP allows both floating and fixed interest rates.
2. You can take a LAP on the house on which the loan is due. (the building you took a home loan for).
3. When you take a home loan, the valuation of the property grows with time. In this scenario, you will get a LAP up to 60% of your home’s market price.
4. LAP doesn’t offer you any tax benefits or deductions.
5. Suppose you are co-owner of any property and wish to take a LAP. In this case, all the co-owners must agree to this loan. Otherwise, you can’t apply for this loan.

Conclusion:

As the LAP is a secured loan, it has many benefits. The process may seem complex, but once you fill the form, the banking staff will be there to assist you. You need to fulfil the bank’s eligibility criteria for the LAP. You can take a personal loan, or a LAP depends on your willingness to pay the amount. LAP is one of the better methods of getting funding. The main drawback of such a loan is that the bank will seize ownership of the property in case of payment failure. You should always make such decisions based on your willingness to pay back.