What is LAP Definition, Features & Purpose!

From personal loans to home loans, there are several options available for those seeking a financial boost. Each of them has unique benefits and differences in terms of interest rates and loan amounts. A Loan Against Property or LAP is a versatile finance option that lets you leverage your property to secure potentially higher amounts and lower interest rates compared to unsecured loans. Plus, they offer more flexibility of use compared to traditional home loans. It can be a particularly beneficial tool for those looking at larger expanses such as business expansion, debt consolidation, or higher education.

In this article, we will understand in-depth the LAP meaning, its features and benefits, the factors that influence LAP eligibility criteria, and more.

Table of Contents

• What Is Loan Against Property?
• Features and Benefits of Loan Against Property
• Purpose of a Loan Against Property
• Documents Required for Loan Against Property
• Factors Affecting Loan Against Property Eligibility
• Conclusion
• FAQs

What Is Loan Against Property?

Let us understand the LAP meaning or LAP definition. A LAP is a secured loan where a borrower uses their residential or commercial property as collateral to acquire funds. The lender generally provides up to 70% of the market value of the property as a loan. In case of default or failure to repay, the lender keeps the right to auction the mortgaged property to recover the dues. Being backed by collateral, a Loan Against Property often leads to higher loan amounts and favourable interest rates, depending on the borrower’s eligibility.

Whether you are a salaried employee, a self-employed individual, or an SME, a LAP can be tailored to suit your unique needs.

Features and Benefits of Loan Against Property

Let us see why a Loan Against Property can be a suitable financial option for your needs:

Higher loan amount: The borrower can avail of a higher loan amount, up to 60-70% of the market value of the property, which makes it an ideal financing option for meeting big-ticket expenses. Please note that the maximum LTV value depends on the lender’s policy and the borrower’s eligibility.
Competitive interest rates: As the loan amount is secured by a mortgage, there is a lower credit risk for lenders, which helps you to get a lower interest rate compared to a personal loan. At SMFG Grihashakti, we offer affordable Loans Against Property interest rates. Our offers depend on the eligibility of the applicant, as well as our policy at the time of loan application.
Longer repayment tenure: The repayment tenure for LAP can go up to 15 years, which makes repayment affordable for borrowers. The maximum tenure depends on the current age of the applicant as well as their eligibility.
Income tax benefits: Depending on the use of funds, you can claim tax deductions under various sections of the Income Tax Act. For example, if the loan amount is used for building a new house or home renovation, you can claim a tax deduction on the interest component.
Zero-usage restriction: There is no restriction on the usage of the loan amount and can be used for any purpose, except for financing unlawful activities.
Fast approval and disbursal: One can receive funds quickly by meeting all the eligibility criteria and submitting all the necessary documents.
No foreclosure charges: No prepayment penalty charged on closing the loan account early, before the repayment tenure ends, as long as the loan was taken on floating interest rates for non-business purposes.

Purpose of a Loan Against Property

The purpose of a LAP is to provide borrowers with a substantial financial resource by using their residential, commercial, or industrial property as collateral. This type of secured loan is typically used for significant expenses such as funding business growth, managing large medical bills, financing children's education, or consolidating high-interest debts. Moreover, you get to retain ownership of your property while you are making repayments.

Documents Required for Loan Against Property

The following documents are required to avail of a LAP by a salaried professional:

• Proof of identity - PAN
• Proof of residence - Aadhar, Utility Bill, Property Tax
• Proof of income - 3 months salary slip, 2 years Form 16, 6 months bank statements
• All documents related to the property you want to pledge

Self-employed professionals need to provide the last 2 years of ITR with computation, CA audited finances wherever applicable, and 6 months' primary bank account statement.
Depending on your eligibility as well as our policy, additional documents may be requested.

Factors Affecting Loan Against Property Eligibility

The following factors affect the LAP eligibility:

• Age of the borrower - Younger applicants may get more preference as they have longer earning years to comfortably manage repayments.
• Bad credit score and history of the applicants - This can significantly reduce eligibility, as lenders view such applicants at a higher risk of default.
• Lack of regular flow of income - As lenders check for an applicant’s ability to repay the loan, irregular or inefficient income can reduce eligibility.
• Lack of employment stability - Frequent job changes or periods of unemployment can negatively impact eligibility, as lenders usually look for applicants with steady employment.
• Insufficient or lack of clear property documents - As lenders need to verify your eligibility and the property value, incomplete or inaccurate documentation can delay or prevent approval.
• Higher debt-to-income ratio of the applicants - This indicates that a significant portion of the borrower’s income is already committed to other debts, reducing their capacity to take on additional loans.
• Underinsurance of the property - If the property is underinsured, lenders may perceive it as a higher risk, which can affect the loan approval process.
• Rejection of previous loan applications - This can signal financial instability or creditworthiness issues to lenders, affecting the chances of loan approval.

Conclusion

Understanding the Loan Against Property meaning is essential for anyone looking to benefit from this versatile financial tool. This secured loan can give you substantial loan amounts against your property’s value, all the while allowing you to retain ownership while you make repayments. Similar to unsecured loans, a LAP can be used for multiple purposes from business expansion, debt consolidation, funding education, managing wedding expenses, and more.

At SMFG Grihashakti, we offer Loans Against Property up to INR 5 crores* at affordable interest rates and flexible loan tenures of up to 15 years. Apply for a Loan Against Property online or contact us to know more.