A loan against property or LAP is a secured credit option borrowed from banks or NBFCs. As the name suggests, it is a loan provided to you against your property, which must be immovable and physical property. The property can be residential or commercial in nature. 

You, as an applicant for a loan against property, must mortgage your own property as security or collateral to procure the loan. The loan proceeds processed are based on the property value – commonly known as LTV (loan to value). Based on varied norms, loan advances can consist of around 60 percent of a property’s value. The loan availed then requires to be repaid through EMI (equated monthly instalments), which continue for a specific time period at a predefined rate of interest. In comparison to other loan options – personal loans, car loans etc., the interest rate for loan against property is the lowest of all. This is because a loan against property is a kind of secured loan for providers, which makes your property documents security or collateral for a loan against property. However, if the borrower/customer defaults in making the payment for whatever reason, the right of the property will be transferred to the loan against the property lender; this condition is not just true for SBI Loan Against Property lenders but also for other lenders. 

Thus, it is crucial to ensure the EMIs are paid by the due date each month without any delay or interruption. Also, any non-repayment or delays can negatively affect your credit score or rating, thus making this tough to secure any other credit option. 

There cannot be any debate because a property is a highly valued asset owned by an individual. And this can come in handy when you require a huge amount of funds but do not want to use your savings. In other terms, a LAP is a secured credit option that you can opt for to finance your expenditures linked with marriage, medical emergency, children’s education, business expansion etc. Additionally, as it is availed against security or collateral, it is simpler to avail one and get approval for it instantly. Generally, lenders finance up to 70 percent to 80 percent of the market value of a residential property. Now, generally, LAP is spread over 10 to 15 years or more based on different parameters. 

For the loan against commercial property, hard-earned money loans are the best options as they are approved instantly and provide additional offers with many other benefits. 

Top 6 factors you must keep in mind when placing an application for a loan against property

∙       Loan repayment tenure

The repayment tenure is the initial point you must factor in. As LAP is a secured credit option, lenders might typically provide a longer loan repayment tenure, which can go as high as 20 years, based on the applicant’s age, income, and other important eligibility criteria. 

Suppose you and your companion each availed mortgage loan on the commercial property for an amount of Rs 20 lakh at a 10 percent interest rate. But you chose a payback period of 15 years, whilst your pal opted for a repayment tenure of 10 years. Here, the difference between both loans will be: 

ParametersLAP availed by your palLAP availed by you
Loan amountRs 20 lakhRs 20 lakh
Rate of interest10 percent p.a.10 percent p.a.
Loan repayment tenure 120 months180 months
EMIRs 26,430Rs 21,492
The overall interest paid towards the end of repayment tenureRs 11.71 lakhRs 18.68 lakh
Interest % in repayment amount37 percent48 percent

The table above clearly reveals that while your loan EMI is about Rs 4,938 less than your pal’s, you still end up spending nearly Rs 6.96 lakh more as interest constituent towards the end of your LAP period than your pal. It is advised that you use the LAP or Loan Against Property EMI Calculator to compute a suitable term and save considerable money on interest. 

∙       Loan amount

The next important factor you must consider is the loan amount. As loan providers hold the security of physical assets, bigger loan proceeds can be provided based on the value of the property. However, before this, the lender ensures to conduct due diligence and assess the value of the property. Apart from this, the applicant’s age, past repayment history, income and credit rating score are taken into consideration before disbursement of the loan. 

∙       Rate of interest

A third crucial factor that matters the most is your interest rate. As previously mentioned, a loan against property interest rate is lower than the unsecured loan option. The more secure is your loan, the lower is your rate of interest and vice versa. Where the monetary risk loss is low, loan providers can afford to provide a lower rate of interest.

∙       Processing time

A fourth important concern is a time taken to process the loan option. Unlike a personal loan, which is processed within days, a loan against property usually takes time as lenders require to conduct proper scrutiny of property as well as its documents. An examination of the property’s worth is conducted to determine its present market value. 

∙       Loan eligibility

A fifth important point to consider is to look out for lenders who can offer customized eligibility programs to provide maximum loan proceeds. Such a lender must also be in the position to offer good quality services after the disbursal of the loan, as the relationship may continue for as long as 20 years. Such services must involve a digital one also, which ensures speed, convenience, and a seamless experience. 

∙       Insurance cover for a loan amount

Lastly, loan providers must also be able to provide additional protection through insurance cover for the loan amount as a rider for the security of the borrower and to safeguard his or her family against unforeseen events. In essence, the benefits of a loan against property involve a lower rate of interest, higher loan proceeds, higher repayment tenure, higher flexibility, insurance cover and a good post disbursal service. 

Property type: 

Property type makes a massive difference when it is to LAP. You must ask yourself the listed questions – 

What is the property’s nature? Residential or commercial?

Remember that a commercial property fetches better loan value than compared to residential property. The reason is most commercial office spaces are situated in the market’s heart, bearing a higher value. In case you own a manufacturing unit or factory, it is believed that property size will be bigger as compared to your residential place. However, you might also find a bank that offers better LAP rates for residential property.  

Where is the property located?

If your property, whether residential or commercial, is situated in a posh region and has all the luxurious and basic amenities within a radius of 2-5 km, you can get an extremely better bargain on LAP. Basic amenities include access to hospitals, schools, pharmacy stores, groceries, and others.