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What is loan against property? Find out

Last updated on: April 1, 2011 11:50 IST

What is loan against property? Find out

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Generally, people accumulate assets to cocoon themselves in the safety net of financial security.

However when a sudden need for funds arise and they need to borrow from a bank, they often neglect to utilize their assets to reduce the expense of their credit.

Right from education needs for your children to financing a business the first thing that would come to mind is: 'Where would I get the money from?'

One of the options available is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.

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Image: Loan against property can help meet urgent financial need.
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What is a loan against property?

A loan against property is exactly what the name implies - a loan given or disbursed against the mortgage of property.

The loan is given as a certain percentage of the property's market value, usually around 40 per cent-60 per cent.

Loan against Property belongs to the secured loan category where the borrower provides a guarantee by using his property as security.

The borrower can either opt for an overdraft option where he is required to pay interest only on the amount withdrawn or a lump sum loan amount.

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Image: Loan is given as certain percentage of the property value.

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The disadvantage of an overdraft facility is that the interest rate charged may be higher, in some cases up to 0.5 per cent and also annual processing fees will be charged.

Besides, if you want the overdraft facility, you have to take the loan only from a bank as other financial institutions do not offer a saving/current account.

In case of a lump sum loan, processing fees are charged only once when the loan is taken and also the individual can approach either a bank or financial institution for the loan.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: Overdraft facility has disadvantages.

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What is loan against property? Find out

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What purposes can I take a loan against property for?

Loan against property can be taken for following purposes:

i) Expanding your business

ii) Getting your son/daughter married

iii) Sending your son/daughter for higher studies abroad

iv) Funding medical treatments

How is LAP suitable?

Long tenure loans: For individuals requiring funding for a long period of time, LAP can come very handy because the tenure of these loans can be a maximum period of 15 years

Large Loan amount: Individuals requiring substantial funds also should consider this loan option as a large loan is possible.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: Loan against property can help in several ways.

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Of course it depends on the property value. There is no restriction as in case of personal loans where the maximum loan permissible is Rs. 10 lakhs.

Lower rate of interest: On account of the security provided in terms of the house, the rate of interest charged by banks tends to be much lower than personal loans

What kind of properties can I mortgage for a loan?

You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: Interest rate is low.

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What are the eligibility criteria to get a loan against property?

These criteria will vary from one bank to another. However, of all factors, the most common are:

i) Your income, savings, debt obligations

ii) Cost/value of the property mortgaged

iii) Your repayment track record for other loans, credit cards, etc.

What are the usual interest rates and tenure for repayment offered for a loan against property?

Interest rates on loan against property range from 13 per cent-16 per cent and the loan tenure can be up to 15 years.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: Criteria varies from bank to bank.

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How is a loan against property different from a personal loan?

i) The individual takes the loan by mortgaging the house property.

ii) An individual can take a personal loan for personal use without any security or guarantor.

iii) One of the cheapest retail loans after home loans; usually in the range of 13 per cent-16 per cent.

iv) Higher interest rates compared to LAP; usually issued at interest rates in the range of 14 per cent - 24 per cent.

v) Since the rate of interest is lower, frequently LAP Equated Monthly Installments turn out cheaper.

vi) Since the rate of interest is high, the Equated Monthly Installments for personal loans are high.

vii) Maximum loan eligibility is determined primarily by the value of the property and income.

viii) Maximum loan eligibility is determined primarily by an individual's income.

ix) Maximum loan tenure for LAP is up to 15 years (180 months).

x) Maximum loan tenure for personal loan is up to 5 years (60 months).

xi) LAP is a secured loan.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


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LAP Advantages

i) An idle asset can be utilized to aid financial comfort.

ii) Loan processing is comparatively faster than a housing loan.

iii) You can prepay this loan without any penalty. By prepaying whenever possible you can bring down the cost of credit (some banks permit a minimum part payment of Rs. 5,000/- most start at Rs.10,000/-).

iv) You can increase the borrowed loan amount through a refinance option, when property value rises. This is particularly useful for expanding a growing business.

v) You will retain property ownership. In the event of being unable to repay the property can be sold to settle the dues with the surplus cash allowing one to start afresh.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: LAP has many advantages.

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This can been a boon in case of a financial crisis, as property value generally moves on the upward trend, providing you a platform to rebuild your finances.

Some disadvantages of LAP

i) Banks generally do not provide loans beyond 60 per cent of the value of a house property and 50 per cent of a commercial property.

ii) New businesses generally cannot have access to LAP. They should have been in existence for at least 3 years. Salaried individuals of course can get it if they are employed for over one year itself.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: LAP has some disadvantages.

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There will be some processing charges usually in the range of 0.5 per cent to 1 per cent depending on the support given by the bank.

Some banks may ask us to do the running around to get the encumbrance certificate and legal opinion ourselves and charge us lesser.

A loan against property is one of the best ways to raise money.

Of course the most obvious disadvantage is losing your property in a bid to repay the loan.

Hence, base your decision on your repaying capabilities.

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BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2008 www.BankBazaar.com. All rights reserved.


Image: Base your decision on your repaying capabilities.

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Powered by
BankBazaar.com is an online marketplace where you can instantly get loan rate quotes, compare and apply online for your personal loan, home loan and credit card needs from India's leading banks and NBFCs.
Copyright 2014 www.BankBazaar.com. All rights reserved.