When it comes to arranging a substantial amount of money primarily to take care of a personal or professional emergency within a short time frame, a loan against property (LAP) could be the best option property owners have. 

What is Loan Against Property?

Individuals who own land or commercial or residential property can avail themselves of a loan up to 75% of the property’s value by pledging the property as security or collateral. Property owners must submit the property papers to the lender, where they stay until the borrower has cleared the entire loan. 

The lender can sell the pledged property for recovery of loan money only in case of a loan default. In the normal scenario, the property owner can continue to use the property however they like. If it’s a residential property they have pledged, they can continue to inhabit it and if it’s a commercial property against which they have availed themselves of a loan, they can continue to rent it out and earn rental income from it. 

Loan Against Property: Benefits 

1. Low-Interest Rates: Loans against property are seen as risk-free loan offerings by lenders, primarily because they involve collateral or security. Thus, lenders sanction these loans at low interest rates. With the right credit profile, a borrower can negotiate for an interest rate as low as 9.50% per annum. 

2. High Loan Sanction: Under LAP, a property owner could borrow up to 75% of their property’s value as a loan. However, this is possible only if the borrower can comfortably afford to pay the loan EMIs for such a hefty loan. 

3.  Long Repayment Tenor: Most lenders give borrowers up to 20 years to repay their loan against property. This long repayment tenor takes the burden off the process of loan repayment. 

4. No End-Use Restrictions: One of the biggest benefits of a loan against property is that the loan money comes with no end-use restrictions. Thus, borrowers can use the funds availed of however they like. 

5. Tax Benefits: Depending on how a borrower uses the loan against property funds, they can become eligible for property loan tax benefits. 

Loan Against Property: Things to Keep in Mind

If you are planning to avail yourself of a loan against property, here are a few things you must keep in mind to experience a smooth loan repayment journey and minimize the chances of a loan default. 

 

1. To start with, before beginning your loan against a property loan application, use a property loan EMI calculator to work out the most ideal combination of loan value and tenor for you. The idea is to make sure you have a combination that delivers loan EMIs that are comfortably affordable.

2. Loan borrowers must also use the loan against the property eligibility calculator to calculate the loan amount they are eligible for. Loan against property eligibility calculators take into account a loan applicant’s current income, existing debts, etc. to calculate the loan EMIs they can afford to pay. Applying for a loan amount one is eligible for increases one’s chances of getting approved for a loan and negotiating for better loan terms and conditions. 

3. Lenders generally offer better terms and conditions on home mortgage loans as the general opinion among lenders is that borrowers are more dedicated to paying off the loan against their home and having all the property papers back in their name than they are about saving a commercial property they own. This is most certainly a myth. 

4. Pledging high-quality collateral, maintaining a high CIBIL score and opting for a low LTV ratio loan are some of the things you can do to increase your chances of winning the best property loan deal.