A loan against property (LAP) is
exactly what the name implies — a loan given or disbursed by mortgaging
property. The loan is given as a certain percentage of the property's market
value, usually around 40-60 per cent. It 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only on the amount withdrawn or a lump sum loan amount. 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.
Additionally, only banks can offer the overdraft facility as other financial
institutions do not offer savings/current accounts.
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.
WHY LAP?
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
option as a large loan is possible. 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 lakh.
Lower rate
of interest: On account of the house being the collateral, the rate of interest
charged by loan against property
banks tends to be much lower than personal loans.
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.
Source: https://loanagainstproperty.quora.com/Loan-against-property-scores-over-personal-loans
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