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How does loan against property helps a borrower?


There are two types of loans, firstly secured and secondly unsecured. Loan against property (LAP) falls under the secured loan category where a borrower offers his or her commercial or residential property as collateral to borrow a certain amount from a lender either by banks or other financial services providers. Both salaried and self-employed individuals can avail of LAP.

Among many benefits of LAP are lower EMIs as interest rates are lower compared to home loans. Since LAP is a secured loan, the approval to avail of them is also hassle-free and fastest. There are also low to zero prepayment charges on LAP.

Furthermore, LAP usually comes with no end-use restrictions. This means the amount borrowed against your property can be used for various purposes such as funding your business, education, marriage, medical expenses, and other personal needs. But these are not just the only uses of LAP!

According to Jairam Sridharan, MD, Piramal Capital & Housing Finance, the following are the uses of loans against property.

1. Buying a house:

There are numerous benefits of buying a new property – to use it as a holiday/weekend home or generate extra income by leasing it out. A loan against property is a fantastic way to arrange for funds, wherein borrowers can obtain a loan and offer a property that they already own as collateral. Also, when the existing property is mortgaged to the lending institution, it can still be used by the borrower for any residential or commercial purposes.

2. Longer repayment tenure:

In comparison to a personal loan, LAP usually comes with flexible and longer repayment tenure going up to 15-20 years. A longer loan period also means that the monthly EMI is smaller, thereby reducing the financial pressure on the borrower. The borrower may also choose to part-prepay the loan amount anytime during the tenor at lower to no prepayment charges.

3. Finance your business expansion and expenses:

LAP offers several benefits for business owners, such as flexibility in end use, comfortable eligibility criteria, and longer repayment tenures, among others. These benefits make it very useful for business owners to avail of a loan against property. In terms of flexibility of end use, the funds can be easily used towards whichever business requirement is most urgent – capacity expansion, hiring employees, buying machinery, etc.

4. Manage big-ticket expenses:

A borrower can avail of a loan against property for numerous reasons. It can be used for any big ticket such as financing your child’s higher education, foreign trip, wedding, medical emergency, or simply to pay for business expansion. LAP can also be used for purchasing a new property, renovations to the existing property, or working capital requirements.

5. Obtain a large sanction:

LAP is a viable option if a borrower is in need of large sums of money in one go. When a borrower pledges any property as collateral, the lender sanctions a sum between 65% and 75% of the property’s current market value. As per eligibility, a borrower may get an even higher amount from the lending institution to meet his/her financial expenditures. Therefore, the amount that a borrower can access by opting for LAP, is likely to be higher as compared to a personal loan.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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