Loan against property (LAP) is a secured loan is taken to fund for various purposes. Starting from business-related purposes, to fund a child’s education, medical emergencies, weddings or any other personal needs. These loans are offered by various banks against properties. Banks offer a relatively larger sum of money when a property is used as collateral, than in other types of loans. However, the amount of loan that the banks offer generally up to a certain amount that the EMI you pay does not exceed 60 per cent of the monthly payment you receive in hand.
If you are also planning to take a loan against your property, keep these things in mind before opting for one.
1. Before approving for a loan, banks check certain records such as payment-track records and repayment ability of the individual. However, if you have other loans or existing liabilities, your eligibility for another loan goes down further.
Certain banks also take into consideration the number of dependants in an individual’s family. More dependants are considered as lower repayment capacity.
2. These loans are available for longer tenures of up to 15 years and with speedy approvals and flexible repayment options, the documentation for a loan against property is relatively easy. However, banks may not approve your loan request if the property taken as collateral is under dispute or the property papers are not clear about ownership.
3. Loan to value (LTV) ratio is normally restricted to 50-60% of the property’s market value. The loan can vary from Rs 5 lakh to Rs 500 crore, and the tenure goes up to 20 years.
4. You could end up losing the property against which you have taken the loan, hence, experts suggest, one should avoid over-leveraging as it can result in a loan default. If the property being offered as collateral is disputed, your loan request could also be turned down.
5. Unlike home loans that provide a tax benefit of up to Rs 200,000 per year on interest repayment and Rs 150,000 on principal repayment, LAP does not provide any tax benefit.