LAP or loan against property has recently become extremely popular form of longer term loans. It is highly appreciated by self employed people. This particular category of loan has shown substantial growth over the past years and is expected to grow even more in the coming years. There are several things that must be kept in mind while availing a loan against property.
The rate of interest associated with a loan against property is lower than that associated with personal loans as the Lapps are secured against the borrower’s property or house. The rate of interest ranges between 11.5% and 15% per annum. On the other hand, the tenure ranges between 1 year and 9 years. However, the tenure can be extended up to a period of 16 years, whereas personal loans come with a maximum tenure of 5 years. The bank or the lender offering the loan checks your obligations associated with debt servicing, income, and the credit score before sanctioning the loan. Loan against properties are offered on freehold property. The owner should have clear title to the property.
In order to bring down the risk factor, several banks provide loans ranging between 50% and 65% of the property value. Some of the NBFCs (Non-banking Financial Companies) offer 75% of the property value as loan. The processing fee for this loan ranges between 0.5% and 1.5%. Loans are sanctioned only after the self employed applicant shows his/her track record for earning for the past 3 years. This is usually done by submitting IT returns.
In order to calculate the borrower’s eligibility towards the loan, the bank or the lender will specifically consider a certain percentage of the property’s market value and the borrower’s capacity of repayment. Typically, non-banking financial companies and banks offer only a certain percentage of the property as loan. This value ranges between 50% and 65%. The lender also considers the repayment capability of the borrower considering your economic stature. Also, there is an age limit associated with the loan. For a salaried applicant, the maximum age at which he/she can avail loan against property stands at 60 years. For a self employed applicant, the maximum age at which he/she can avail loan against property stands at 70 years.
As loan against property or LAPs are secured loans, they are cheaper than the personal loans. In case of personal loans, the rates of interest range between 12.5% and 21% per annum. This greatly depends on the salary you draw, the company you work with, etc. The tenor or LAPs can range between 10 years and 15 years. You may either choose an overdraft facility or go for a lumsum.
In general, the processing fee for this particular type of loan stands between 0.50% and 3%. The processing fee is deducted from the sanctioned loan amount. Some of the lenders can charge you up to 2% pre-payment penalty if you choose to clear the loan before the end of the tenure. As per the state laws, statutory charges and stamp charges are also applicable. In case of delayed payment of the EMIs (Equated Monthly Instalments), you may have to pay a penalty charged by the lender. This particular penalty varies from one lender to another. Usually the penalty interest stands at 2% to 3% of the overdue instalment per month.
For Salaried Individuals
|For Self Employed Individuals|
Before you opt for a loan, analyze and assess your repayment capability. Often people opt for loan against property as they are cheaper than personal loans and then use that money in risky avenues. Most of them fail to repay the debt and end up losing their property. Ensure that you are completely capable of repaying the loan and use the amount for something that you really need.
Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.