Benefits Of A Loan Against Property (LAP): What You Need To Know

A Loan Against Property (LAP) is a secured loan where you pledge your residential, commercial, or industrial property as collateral. It is an effective way to access large sums of capital at relatively lower interest rates. Whether it is for business expansion, education, medical expenses, or debt consolidation, LAP offers a smart financial solution for property owners. This article explores key benefits of a loan against property and what one needs to know before applying for it.

What is a Loan Against Property?

A is a secured loan where a borrower pledges an immovable asset, typically residential, commercial, or industrial property, as collateral to avail funds from a financial institution. Unlike a personal loan, which is unsecured and comes with higher interest rates and shorter tenures, a LAP offers better borrowing terms because of a tangible asset backing it.

Advantages of a Loan Against Property

The following are the advantages of a loan against property:

1.  Lower Interest Rates

One of the standout advantages of LAP is its comparatively lower interest rate. Since it is a secured loan, the lender assumes less risk, which allows them to offer more attractive interest rates than those offered on unsecured loans like personal loans or credit cards. The average interest rate on a LAP usually ranges between 8% and 12% per annum, depending on the borrower’s credit profile and the property type. This makes it an affordable option for large-ticket borrowing.

2. High Loan Amount

Securing a large loan amount is another important advantage. Most of the time, about 60% to 75% of a property’s market value is used as the amount of the loan. Therefore, if your property is valued at ₹1 crore, you may get a loan that ranges between ₹60 and ₹75 lakhs. For this reason, LAP is appropriate for large amounts, such as when forming a business, buying another property or studying in a different country.

3. Longer Repayment Tenure

Unlike personal loans that usually have a maximum tenure of 5 years, LAPs come with longer repayment periods, ranging from 10 to 20 years. A longer tenure results in lower EMIs, which can significantly ease the repayment burden. It also provides more time to manage your finances without affecting your other expenses.

4. Flexible Usage

One of the key advantages of LAP is its flexibility in end use. Whether it's funding medical expenses, renovating your home, or supporting your business operations, you can use the capital as per your specific needs

5. Continued Property Ownership

While your property is pledged as collateral, it continues to remain in your name and possession. You are not transferring ownership, you are merely mortgaging it. Once the loan is paid in full, the mortgage is removed, and the property documents are returned. This allows you to make use of the financial value of your property without losing ownership.

6. Easy Eligibility and Processing

Compared to unsecured loans, loan eligibility for LAP is easier to meet. If you have a steady source of income, a decent credit score, and clear ownership of the property, you are likely to get approval. Financial institutions usually evaluate your income, property valuation, existing obligations, and repayment capacity before sanctioning the loan. Additionally, a favourable credit profile can help you secure a competitive, making the borrowing process both accessible and cost-effective. In many cases, the loan disbursal happens within a few days of document verification.

7. Tax Benefits

While a loan against property does not provide standard tax benefits like a home loan, there are specific conditions under which tax deductions may apply:

●       If the loan is used for business purposes, the interest paid can be claimed as a business expense under Section 37(1) of the Income Tax Act.

●       If the loan is used for constructing or purchasing a residential property, interest payments may be eligible for deduction under Section 24(b), up to ₹2 lakh annually.

However, no tax benefit is available if the loan is used for personal expenses like weddings or travel.

Conclusion

A Loan Against Property can be a powerful financial tool for individuals and businesses who require a large sum of money at affordable terms. With lower interest rates, longer tenures, high loan amounts, and flexibility in usage, LAPs stand out as a smarter alternative to personal loans or credit cards for significant expenses.

However, it is important to borrow responsibly. Defaulting on repayment could lead to the lender taking legal possession of your property. Always assess your repayment capacity, compare lenders, and read the loan terms carefully before proceeding.