Home Business: What is Loan Against Property (LAP) and How is it Different from a Home Loan?
Loan Against Property (LAP) is a secured loan option offered by banks and financial institutions. It uses a property as collateral, which means that the lender can seize the property if the borrower fails to repay the loan. LAPs are popular among borrowers who require a large amount of money quickly, as they usually come with lower interest rates compared to unsecured loans.
To apply for an LAP, you need to provide the lender with documentation proving your ownership of the property, such as a title deed or mortgage statement. The lender will assess the value of the property and offer a loan amount based on a percentage of its value. The interest rate on the loan depends on factors like your credit score.
LAPs can be used for various purposes, including weddings, medical emergencies, or business investments. On the other hand, a home loan is specifically designed for purchasing a home. While home loans typically have lower interest rates than LAPs, they require a larger down payment. This is because the property serves as collateral for the home loan, making it a lower-risk option for lenders.
The key features of Loan Against Property include the loan amount being a percentage of the property’s market value (usually 60-70%), property valuation based on factors like location and condition, and loan disbursement once the borrower’s documents are verified.
A mortgage loan, on the other hand, is a loan that uses a residential or commercial property as security. It allows borrowers to pay off the debt through easy monthly installments. Lenders prefer properties with clear ownership titles and may provide a repayment period of up to 20 years.
In summary, Loan Against Property is a secured loan option that can be used for any purpose, while a home loan is specifically for purchasing a home. LAPs generally have higher interest rates compared to home loans, but they offer more flexibility in terms of usage. Mortgage loans use a property as security and offer longer repayment periods.