Is it a good idea to invest in Loan Against Property?

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Loan against Property (LAP) is a secured type of loan borrowed by an individual by pledging the property documents and can be availed by an individual to meet his or her own needs. Loan against property is beneficial if you want to borrow a lump sum amount of money to cater to various needs and purposes. The LAP can be availed to meet any personal or professional needs of an individual like marriage, meeting medical emergencies, funding business, and so on. 

When it comes to the loan-to-value ratio, usually up to sixty per cent of the property value is offered under Loan against Property (LAP). The loan-to-value ratio thus varies accordingly, and it helps determine the loan amount that can be offered based on the value of the property. The maximum tenure of a Loan against Property (LAP) is usually around fifteen to twenty years. When it comes to tax benefits, there is no tax exemption packed with Loan against Property (LAP)

 Once you are eligible to avail of a LAP, specific documents like address proof, ID proof, highest qualification proof, property documents, and other important documents are required to be submitted by both salaried individuals and self-employed individuals. Submission of all the important necessary documents and authentic details will help the bank in understanding and processing your LAP application. Here are five foolproof points to help you get enough clarity and clear the air of confusion regarding investing in a LAP.

  1. Before the loan gets approved, you must first qualify yourself and tick all the criteria laid down by the financial institution in order to avail of the loan. They go through your payment-track records, your monthly income details, additional income sources, financial stability, and other important details to check the individual’s repayment ability. Some financial institutions also take into consideration the number of family members you are financially responsible for because the higher the number of financial dependents, the lower the repayment capacity. Financial institutions also refer to your existing obligations like EMIs or credit card dues and overdrafts, if any.
  2. Along with meeting the requirements of the financial institution offering the loan, make sure that you carefully understand the terms and conditions laid down for your loan. Most importantly, ensure that your monthly income and finances are stable enough for you to repay the loan on schedule without being a defaulter comfortably.  
  3. Since Loan against Property (LAP) offer a lump sum amount, lasting over a long period of time, it is essential for you to compare your options carefully and which lender is the best suited for you, understand what it will take to qualify for the loan, and make the right decision. Along with comparing interest rates, it is equally important for you to compare other charges like GST charges, penalty charges, processing fee, and other additional charges.
  4. As a secured loan, Loan against Property (LAP) usually gives you access to a lump sum amount of money at typically lower rates of interest. It is also easier to qualify for a LAP unlike an unsecured loan because you are using your personal assets as collateral. The downside here is that using personal assets as collateral means risking your own property if you are unable to repay the loan on a timely schedule.
  5. Investing in a Loan against Property (LAP) means that the property papers and legal documents are with the bank offering you the loan. There is an increased risk of losing your property in case of untimely repayment and loan defaults. Further, there is also a risk of banks disapproving the loan if the property taken as collateral is under dispute or if there is a discrepancy in ownership. Make sure you submit authentic documents so that the chances of the bank turning down your loan request get minimum and always avoid over-leveraging.

Conclusion

Consider the points mentioned above before you invest in LAP. It is a good idea to invest in LAP only if you do not end up over-leveraging and have stable financial resources. If you own a commercial property or house property and need a large lump sum amount, taking a Loan against Property (LAP) could be your first option. In case of immediate needs, you can always consider a LAP if you have all the necessary documents handy because the processing of a Loan against Property is much faster when compared to any other type of loan. Comparing and researching before availing a Loan against Property is highly recommended. 

 

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