What you need to know: Loans against Property

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Sending children abroad for education or financing a business requires a sizeable amount of money and this amount is not usually readily available for everyone. The most common ways to acquire funds is to take a loan. The loan could be a personal loan for the required amount or you could take a loan out on your property.

A loan against property (LAP) is a loan given or disbursed against the mortgage of a property. The loan is given as a certain percentage of the property’s total value, usually 40% to 60%. This loan falls under the secured loan category where the property is used as security. These loans can be taken for various reasons such as financing your business, meeting family obligations such as marriages, purposes of higher education, funding medical treatments or your personal reasons.

The loan can be taken out on your self-occupied or rented residential property. This could be a house or even just a plot of land. To be eligible to apply for a loan against property, banks must approve the following fields of the applicants:

  • Your income, savings, debt obligations
  • Cost/value of the property mortgaged
  • Repayment track record for other loans, credit cards, etc

While most banks have other criteria as well, these three are common among them all. The interest rates on loan against property range from 12% to 15.75% and thee tenure is for 15 years.

A loan against property is one of the best ways to raise money. The only disadvantage of this kind of loan is that if the borrower is unable to pay back the loan, the bank takes possession of the property which was used as collateral. So, before taking this kind of loan, one should take into account how reliably they would be able to pay back the loan.

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