Against What Kinds of Property Can You Take a LAP?

You can take loans against both commercial and residential property. If you are wondering whether it’s a good idea to take a loan against property and whether your property qualities to be used as collateral, read on to make an informed decision.

What is a Loan Against Property?

A loan against property is a secured loan that you avail by offering your residential or commercial property as collateral to the lender. The amount you can avail of as a loan depends on the valuation of the property. The property remains with the lender until the loan is repaid. If the borrower fails to repay the loan, the lender has the right to auction the property and recover the amount lent to the borrower.

Which Properties are Eligible for LAP?

For availing a loan against property, you can use any kind of property that belongs to you. For instance, you can use any house you own for availing a home loan against property or use your office or factory premise as well for availing a loan against commercial property.

The interest ratesare typically lower for loans against commercial property compared to using a residential home as collateral. However, this will also depend on the value of the property.

Here are two things to keep in mind:

  • The property must be owned or taken on lease by your or your family member such as your spouse or parents.
  • The property must be fully constructed. Loans against property are not construction finance or home construction loans.

Purpose(s) for Taking a Loan Against Property

The most common reason for which a loan against property is taken is to meet business expenses. This could be expansion of the business or to meet working capital needs. Some people also take such loans for debt consolidation, higher education, a child’s wedding, or to meet urgent medical expenses.

While the home loan against property is usually given for a fully constructed house, you can avail a loan against commercial property for an under-constructed commercial property or even a commercial plot. However, you cannot use the loan amount for the construction of the property.

How to Choose the Best Lender for LAP?

Here are a few things to consider when choosing the lender:

  • The lender must provide a loan against all types of commercial and residential and even leased properties which are fully constructed.
  • The loan disbursal time must be around 72 hours.
  • The eligibility criteria of the lender must be easy and the lender must offer the LAP facility to all kinds of borrowers
  • Since LAP can be used for a different purpose, the range of the loan amount must be wide enough. For instance, it should start from Rs. 3 lakhs to Rs. 5 crores for commercial loan against property.

Why Avail Loan Against Property?

Here are some of the many benefits of taking a loan against property:

  • You can avail yourself of a large amount as a loan against a property compared to collateral-free loans since you are keeping a fully constructed house or commercial property as collateral. The amount can further increase if you are keeping the commercial property as collateral.
  • The interest rate on the other hand will be lower than that of a collateral-free loan, especially if you are availing of a loan against commercial property.
  • The tenure for loan repayment can be an extended one as well and this can help you pay lower EMIs.
  • There isa certain tax benefit as well when you avail of LAP. If you are salaried and using the LAP for a new house then you can get a tax deduction up to Rs. 2 lakhs on interest payment, u/s 24(B) of IT Act, 1961. If you are using the loan amount for expansion of business, and other business requirements, then you can get a tax benefit for the interest and processing fee paid for the LAP u/s 37(1) of IT Act, 1961.

So, if you need finances for a big business expenditure or personal expense, you can meet your needs with a loan against commercial property or a home loan against property. You not only get the approval for a higher loan amount, but also enjoy lower interest rates with this.