What Can I Use Loan Against Property For?

Are you in need of money to finance your business or fund your child’s education abroad? While there may be several convenient ways to meet these expenses, one of the best options is to go for loan. You could either choose to opt for personal loan or another lucrative choice could be to take a loan against your property.

 Loan Against Property (LAP)

It can be defined as a loan disbursed against the mortgage of property. It is granted on a definite percentage of the market value of property which may be around 40% to 60%. This type of loan typically belongs to the category of secured loan in which the borrower provides assurance with the property as a security element.

The chances of getting higher loan amount are greater with the respect to such loans since these are secured. Nearly about 70% of the property value can be granted as the loan amount. The loan against property lowest interest rate might range from 12% to 15% and the loan tenure can be up to 15 years.

Loan Against Property

One can avail loan against commercial or residential property. You can take a loan against your self-occupied or rented residential property which might be a flat or merely a piece of land. There is also a possibility of deriving loan against school property.

Uses of Loan against Property:-

It can be used for the purpose of business expansion, financing the expensive medical treatments, for your vacations, higher studies in some foreign country etc.

Eligibility Criteria For Loan Against Property

The criteria to be eligible for such loans differ from bank to bank. However, there are some common factors such as:-

  • Your earnings, reserves, debt obligations
  • The property used as a guarantee
  • Your reimbursement track record for other loans etc.

How Does Loan Against Property Differ From Personal Loan?

If you have the option of choosing from one of these loans, you need to analyse both the loan types carefully on the basis of different factors before selecting the right one for you.

Loan Against Property Differ From Personal Loan Image


  • The Loan Amount- As mentioned above, loan against property is a secured loan. While a personal loan is an unsecured loan. Therefore, the risk involved is higher and the loan amount is lower. Also, the amount is decided on the basis of the income and the capacity to repay.
  • The Rate of Interest– The interest rate charged on the loan against property is lesser as compared to the personal loan; since there is lower risk of default. While the risk involved with the personal loan is higher.
  • Tenure of Loan– In the case of Loan Against Property, you may not only gain a higher amount of loan but also longer tenure. While in a personal loan, the tenure may be up to 5 years.
  • Processing of Loan– The loan processing for loan against property is a time taking procedure due to the internal and legal checks, proper evaluation of the property. The banks need to carefully examine the property which the borrower pledges to secure the loan. However, the personal loan processing is faster and the loans are disbursed as soon as it gets approval of the lender.
  • Credit Score– You can get a high credit score on a personal loan since it has a high interest rate. With loan against property, you may get a lower credit score and lender gets the benefit of the collateral. But, if the tenure is slightly longer, you can get a better credit core too. Constant Repayment is an ideal way to avail good credit scores.


Deciding which one out of the two is better depends on the financial emergency or the need. For the urgent and crucial requirement, personal loan is better. Since, it can be disbursed within few days of the application. Though, for a high loan amount with low interest rate, loan against property would be an appropriate choice.

Your Mini Guide To Loan Against Property

What is Loan against Property?

In the real estate market today, the property is an asset. Your property can be utilized as a home or to earn rent. The same property can also help you obtain large capital with the help of ‘loan against Property’. The term that is a regular in the housing finance sector is Loan against Property. It is a secured loan that you avail by keeping the commercial or residential property as collateral. The main requirement of Loan against Property arrangement is that the owner must have full authority over the property.

Why Loan against Property?

  • The chance of getting an approval on Loan is higher in case of Loan against Property. This is because banks have collateral as security in case the borrower fails to pay back the loan.
  • Today there are various reasons that aid in the consumer’s decision of resorting to loan against property. It could be a big fat wedding that needs capital, the heavy expense of child education, a much awaited foreign trip, or simply and expansion to the business.
  • New property purchase or renovating an existing one may also sometimes pose as the reason for opting Loan against Property.
  • The other requirements that lead to Loan against property are loan consolidation, business funding or working capital requirements.

What are the types of Property against which Loan against Property can be availed?

Like every loan has some pre requisites that require attention, Loan against property also has some key pointers. The types of properties against which loan can be procured are

  • Self-owned residential property
  • Self-owned and self-occupied residential property
  • Self-owned but rented residential property
  • Self-owned piece of land
  • Self-owned commercial property
  • Self-owned but rented commercial property

Eligibility for Loan against Property

The bank requirements are liberal to be eligible for loan against property, since the risk is covered by the collateral that is kept by the bank. To calculate the eligibility, the lender will assess the market value of the property and repaying capacity of the borrower by subtracting the income with other equated monthly installments. After the assessment, a certain percentage (50-65%) of the market value of the property is confirmed as the loan amount. A minimum amount of 2 lakh which varies across financial institutions can be procured as the loan amount. Each bank has its own criteria, but the basic requirement is the same for all, these include

  • The applicant must hold Indian citizenship.
  • At the time of application submission, the applicant must be at least 21 years old. The age limit to apply for the loan exists as 60 years for salaried individuals and 70 years for the self-employed.
  • The bank specifies a fixed number of years of work experience that the applicant must hold as an employee of the organization. In case the applicant is self-employed then the specified years of experience must be fulfilled for the same.
  • A Lender decides a minimum income requirement that must be satisfied by the applicant.
  • An Applicant with a good credit history definitely holds an advantage over the others.

Interest rate and tenure of Loan against Property

It is cheaper than a personal loan, since the property is mortgaged with the lender. The interest rates on personal loans fall under the range of 12.5%-21% per annum. The interest rate for loan against property having assessed all the parameters, such as, loan applicant’s salary, the company applicant is employed with, etc. comes down to 12-15%per annum. The tenure can shoot up to 10-15 years, wherein you can opt for overdraft facility or lump sum. The interest rates vary depending on the financial institution you choose. Depending on the tenure of the loan an individual may opt for a fixed interest rate or floating interest rate. Fixed rate lies between 12-15% per annum and remains fixed throughout the loan tenure and is ideal for a long term loan. The Floating rate is ideal for short term loans and the interest rate varies according to market conditions.

Documents Required for Loan against property

Here are the documents that are required

For salaried individuals

  • Residence and identity proof.
  • Form-16.
  • Cheque for loan processing fees.
  • Past 3 months’ salary slip & 6 months’ bank statement of salary account.

For Self-Employed Individuals

  • Residence and Identity proof
  • Educational qualification proof.
  • IT returns for the past 3 years’ & 6 months’ bank statements.

For Working Professionals

  • Residence & Identity proof.
  • Educational qualification proof.
  • License & registration certificate.
  • Proof of business existence.
  • Business profile.
  • Past 3 years’ IT returns, profit & loss sheet along with balance sheets. Also 6 months’ bank statements.

Before opting for loan, one must compare various lending options, don’t be hung up on the interest rates being offered, instead, explore different verticals as well. A lender that offers a low rate of interest on loan may not always be the most suitable choice. Pay a closer look on to aspects like processing fee, pre-payment, foreclosure charges, penalty charges, and the loan to value ratio. This sums up the brief Informative guide on Loan against Property.