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Loan Against Property Meaning

A loan against property is a secured credit option sanctioned against an asset that serves as collateral. Individuals can provide owned land, commercial premises, or a house as an asset to avail this loan.

Besides understanding the loan against property meaning, it is important to note that there is no restriction on how the borrower uses the sanctioned loan amount. It can be used to meet any personal or business requirements.

Common Loan Against Property Uses

  • Sponsoring higher education
  • Purchasing or constructing a new house
  • Home renovation
  • Meeting medical expenses
  • Purchasing high-end equipment
  • Restocking inventory
  • Replenishing working capital
  • Debt consolidation
  • Funding a wedding

Additionally, when compared to unsecured credit options like personal loans, a loan against property offers a higher loan amount for an extended tenor. Another relevant loan against property information is that its rate of interest is relatively lower than the unsecured options.

How does Loan Against Property Work?

With this credit option, avail up to 70% of the property’s (collateral asset) prevailing market value as the loan amount. Applicants have to submit the property ownership documents, along with other relevant ones, to secure loan approval.

After verification and loan approval, the sanctioned loan amount is transferred to the applicant’s account. The asset in question and property documents remain with the lender as collateral until the entire borrowed sum is repaid.

Types of Loan Against Property

Besides finding out what is LAP loan meaning, also become familiar with the types of this funding option –

  • Loan for Lease Rental

In this type of financing, a property that is a source of rental income can be pledged to raise funds. In lease rental discounting, the funds are available against the rental income that is likely to be received from the property. Accordingly, the rent paid by the tenant would go straight to the lender.

  • Loan for Commercial Property

This particular type of loan against property allows borrowers to pledge an asset as collateral to purchase a commercial property. It proves useful for traders or business owners and enables them to switch to better and more spacious office space, a factory, or even a warehouse.

  • Loan Against Commercial or Residential Property

This loan option allows raising funds against an owned commercial or residential property to meet funding requirements. The sanctioned loan value depends entirely on the property’s market value.

Regardless, before opting for any of these, determine what is loan against property in India. Subsequently, find out about loan against property purpose and requirements in detail to streamline the associated process better.