Loan Against Property vs. Personal loan
What is a loan against property?
A loan against property (LAP) is exactly what the name implies - a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value, usually around 40% - 60%.
Loan against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.
What purposes can I take a loan against property for?
Loan against Property can be taken for following purposes:
1. Expanding your business
2. Getting your son/daughter married
3. Sending your son/daughter for higher studies abroad
3. Funding your dream vacation
4. Funding medical treatments.
What kind of properties can I mortgage for a loan?
You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.
What is the eligibility criteria to get a loan against property?
This criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:
1. Your income, savings, debt obligations
2. Cost/value of the property mortgaged
3. Your repayment track record for other loans, credit cards etc.
What are the normal interest rates and tenure for repayment offered for a loan against property?
Interest rates on loan against property range from 12% -15.75% and the loan tenure can be up to 15 years.
How is a loan against property different from a personal loan?
Loan Against Property:
* The individual takes the loan by mortgaging the house property.
* One of the cheapest retail loans after home loans; usually in the range of 12% - 16%.
* Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper.
* Maximum loan eligibility is determined primarily by the value of the property and income.
* Maximum loan tenure for LAP is up to 15 years (180 months).
* Secured loan.
Personal Loan:
* An individual can take a personal loan for personal use without any security or guarantor.
* Higher interest rates compared to LAP; usually issued at interest rates in the range of 16% - 21%.
* Since the rate of interest is high, the Equated Monthly Installments (EMI) for personal loans are high.
* Maximum loan eligibility is determined primarily by an individual's income.
* Maximum loan tenure for personal loan is up to 5 years (60 months)
* Unsecured loan
What documents are required for applying for a loan against property?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank:
Salaried Customers:
* Application form with photograph
* Identity and Residence Proof
* Latest Salary-slips
* Form 16
* Last 6 months bank statements
* Processing fee cheque
Self Employed Professionals:
* Application form with photograph
* Identity and Residence Proof
* Education Qualifications Certificate and Proof of business existence
* a. Last 3 years Income Tax returns (self and business)
b. Last 3 years Profit /Loss and Balance Sheet
* Last 6 months bank statements
* Processing fee cheque
Self Employed Businessman:
* Application form with photograph
* Identity and Residence Proof
* Education Qualifications Certificate and Proof of business existence
* Business profile
* Last 3 years Profit /Loss and Balance Sheet
* Last 3 years Income Tax returns (self and business)
* Last 6 months bank statements(self and business)
* Processing fee cheque
Source - economictimes.com
