Loan Against Property - An Overview

One of the most popular and widely availed loans in the Indian banking sector is Loan against Property or LAP as it is known in its shorter form. As the name reflects, Loan against property means a loan which is taken by giving property as security.

Under LAP, property which is mortgaged with banks against loan amount may be either a residential property or commercial property or even land. The amount of loan which may be availed depends upon the market value of a property as well as the financial profile of the borrower.

Generally, Loan against property may be availed up to 40 % to 70% of the actual market value of the property. In case of default in repayment of a loan, the banker has the option to sell the mortgaged property and recover its dues.

Purpose or usage of Loan against Property

Unlike Home Loan, where a mere purpose of getting a home loan is to purchase or renovate the home, LAP can be used for any number of purposes like for expansion of business or for children education or child marriage or for overseas travel or meeting medical expenses, etc.

Who are eligible to obtain Loan against Property

Any person resident in India can avail loan against property. Further, Non-Resident Indians can also avail loan against property subject to fulfillment of all the conditions. Some of the conditions which are common for everybody and required to be fulfilled are mentioned as under:

  • In case the borrower is a salaried employee, He/She should either be employed with reputed company or with Government Company.
  • Minimum age for applying for LAP is 24 years and the maximum is 65 years.
  • In case the borrower is professional, He can be in any field like Chartered Accountants, Doctors, Engineers, Architects, etc
  • The borrower should have filed Income Tax returns for last 2-3 years or more
  • There should be the business continuance of at least 3 to 5 years which may be supported by documentary evidence.
  • The property should be legal, freehold, free from any encumbrance and clear title should be registered in the name of the applicant.

Advantages of loans against property

  1. It can be repaid in longer duration normally between 10 to 15 years; therefore, it gives more time for repayment of a loan.
  2. Since it is secured loan, therefore, the rate of interest is less since less risk is involved.
  3. There is no end user restriction; therefore, LAP can be used for end number of purposes.
  4. Volume or quantum of loan is high since it also depends upon the market value of a property, therefore, a huge sum of money can be borrowed.

Rate of Interest for Loan against Property

For loan against property, there is an option to choose between 2 types of interest rates i.e fixed interest rates and Adjustable interest rates. Fixed interest rates remain fixed throughout loan duration and vary from lender to lender whereas adjustable interest rates are not fixed and vary according to prevailing market conditions.

Thus, Loan against property has many advantages and is most suitable for all kinds of money needs of Resident and Nonresident Indians.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.