What’s Loan Against Property (LAP) And How’s It Different From A Home Loan?

LAPs are a popular option for borrowers who need a large sum of money quickly, as they typically have lower interest rates than unsecured loans.

Written by: India.com Business Desk Edited by: Abhijeet Sen

Published: July 30, 2023, 5:39 PM IST

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A Loan Against Property (LAP) is a secured loan that is offered by banks and financial institutions against the collateral of a property. (Image: Pixabay)

New Delhi: A Loan Against Property (LAP) is a loan that is offered by banks and financial institutions against the collateral of a property. This means that the lender can seize the property if the borrower defaults on the loan. LAPs are a popular option for borrowers who need a large sum of money quickly, as they typically have lower interest rates than unsecured loans.

How Does A Loan Against Property Work?

To get an LAP, you will need to provide the lender with documentation proving that you own the property, such as a title deed or a mortgage statement. The lender will then assess the value of the property and offer you a loan amount that is a percentage of the property’s value. The interest rate on the loan will depend on your credit score and other factors.

How LAP And Home Loans Are Different

A loan against property (LAP) is a type of loan that uses your property as collateral. This means that if you default on the loan, the lender can seize your property to repay the debt. LAPs can be used for any purpose, but they are often used to finance major expenses such as weddings, medical emergencies, or business investments.

On the other hand, a home loan is a type of loan that is specifically used to purchase a home. Home loans typically have lower interest rates than LAPs, but they also require a larger down payment. This is because home loans are considered a lower-risk type of loan because the lender has the security of the property as collateral.

The main difference between an LAP and a home loan is the purpose of the loan. An LAP can be used for any purpose, while a home loan is specifically used to purchase a home. Additionally, LAPs typically have higher interest rates than home loans, and they may also have prepayment penalties, as per Axis Bank.

Loan Against Property: Key Features

• Loan amount: The loan amount is typically a percentage of the property’s market value. The lender will assess the property’s value and offer a loan amount up to 60–70% of that value.
• Property valuation: The property offered as collateral is appraised by the lender to determine its current market value. The property’s location, age, condition, and potential for growth all go into the worth.
• Loan disbursement: Once the borrower’s documents have been verified and the property has been appraised, the loan amount is disbursed to the borrower’s bank account. The borrower can then use the funds for the intended purpose, as per Mint Genei.

What’s A Mortgage Loan

A mortgage loan is a loan that uses your residential or commercial property as security. To pay off the debt, make easy monthly installments. Pre-built homes and commercial buildings with unambiguous ownership titles in the borrower’s favor are frequently preferred by lenders. Prior to payments becoming due, up to 20 years may elapse,as per PNB.