InvestorQ : In what situation should a borrower consider a loan against property (LAP)?
Ankit Patil made post

In what situation should a borrower consider a loan against property (LAP)?

Karim Sahu answered.
3 years ago

Loan against Property (LAP) can be availed for a variety of purposes ranging from home renovation to purchase of machinery as well as to meet the shortfall of working capital in an entrepreneur’s business. It is one of the safest proposition for lenders- banks or non-banking finance companies (NBFCs)- because they have collateral of the property as support for the finance they provide.

Salaried people usually opt for mortgage loans to cater to expenses like the educational needs of their children, medical expenses, home renovation, and so on. Business enterprises prefer taking a Loan against Property (LAP) as collateral towards business loans and for procuring working capital requirements.

A Loan against Property (LAP) is easy to procure because it is secured in nature. Banks usually maintain a margin while sanctioning a Loan against Property. This margin usually ranges from 50-90% of the value of the property (it is also known as Loan-to-Value or LTV). This facility is also popular because the borrower can utilize the property in spite of mortgaging it in favour of the bank or the NBFC.

The difference between a Loan against Property (LAP) and a personal loan is that one can take a Personal Loan without providing collateral. However, a Loan against Property requires you to mortgage your property to the lender.

Another significant difference is the rate of interest on a Loan against Property (LAP), as it is less than the interest levied on Personal Loan. This is primarily because the security is available to the bank/ NBFC. Lenders- banks or NBFCs, have the option of selling the security and recovering their dues in case of default on the part of the borrower.