Introduction
Loan Against Property (LAP) is a secured loan for personal or business use, sanctioned against residential or commercial property as collateral. Typical eligibility is up to ~65% of current market value, depending on lender policy and profile.
Product Variants
- Term Loan: Standard EMI for fixed tenure at a floating/fixed rate.
- Overdraft (Smart LAP): Park surplus cash into the loan account to reduce interest for the days money stays parked. Full flexibility to withdraw again.
- Pre-Approved LAP: Check eligibility first, then complete legal/valuation—saves time and cost.
- Balance Transfer: Shift to a better lender/product/tenure/rate; often used to reduce EMI or get OD facility.
- Top-up: Extra amount on your existing LAP, generally at lower rates than a personal loan.
Banks vs NBFCs
| Parameter | Banks | NBFCs |
|---|
| Interest calculation | Daily reducing (commonly) | Monthly reducing |
| Benchmark | Repo linked | Prime/PLR linked |
| Regulator | RBI | NHB/sectoral norms |
| OD / Smart LAP | Widely available | Limited |
| Cost of funds | Lower | Higher |
| Passing rate cuts | Faster | Slower |
| Processing speed | Moderate | Generally faster |
| Flexibility | Lower | Higher |
Eligibility
- Age: Salaried 21–60, Self-employed 21–70 (varies).
- Location: Property/residence/office within lender’s service city.
- LTV: Typically up to ~65% of valuation.
- Citizenship: Resident/NRI as per policy; foreign nationals usually not eligible.
- Credit: Clean repayment track; 700+ score preferred.
- Stability: Steady income, complete documentation, clear property chain & OC where applicable.
- Obligations: Total EMIs usually capped around 65–70% of net monthly income.
When should you transfer your loan?
- Lower EMI / better cash flow: Move to longer tenure or lower rate; plan prepayments voluntarily.
- High current rate: A gap of 1–3% vs market often justifies transfer.
- Service issues: Shift to lenders with better servicing/online tools.
- Need top-up or OD: Balance transfer to a lender offering these features.
Do’s & Don’ts
Do
- Check credit & income eligibility before spending on legal/valuation.
- Ask for full offer terms in writing; read sanction fine-print.
- Prefer maximum tenure; prepay voluntarily when comfortable.
- Set up auto-debit (ECS/NACH/SI) to avoid late fees & credit hits.
- Consider term insurance when property is collateralised.
Don’t
- Over-commit with very high EMI; keep space for savings/contingency.
- Add your company as co-borrower unless essential (can trigger penalties on closure/BT).
- Apply to many lenders at once; too many enquiries hurt score.
- Rely on verbal timelines—mortgage processing can vary.
- Submit incomplete files or allow any fee cheque to bounce.
Common reasons for rejection
- Poor credit/repayment history or frequent cheque bounces.
- Insufficient valuation; blacklisted area/builder; very old/weak structure.
- Improper chain of agreements, missing OC, missing succession proof.
- High obligations vs income; unstable employment/income patterns.
- Guarantor liabilities affecting capacity.
Selecting the best lender
- Policies: Ensure your property/profile fits their norms.
- Rate model: Prefer transparent benchmark (repo-linked), daily reducing.
- Processing & other fees: Compare complete cost sheet, not rate alone.
- Products: OD/Smart LAP can save substantial interest long-term.
- Tenure: Wider tenure band (up to ~15 years, age-linked) is useful.
- Prepayment: Floating-rate loans usually have no foreclosure penalty for individuals.
Benefits
- Lower rates vs personal loans; longer tenure improves cash flow.
- Top-up availability over time; OD/Smart LAP can cut interest without locking funds.
- Timely payments can improve credit health.
Limitations
- No income-tax deduction like home-loan principal/interest.
- Tenure typically shorter than home loans; rates usually higher than HL.
Schedule of charges (illustrative)
| Stage | Charge | Typical range |
|---|
| Pre-sanction | Processing fee | 0.75% – 2.00% of loan |
| Pre-sanction | Legal & valuation | ₹1,500 – ₹20,000+ |
| Pre-sanction | Structural audit (old buildings) | As per report |
| Post-sanction | Franking/Stamp + NOI | As per state rules |
| Post-sanction | CERSAI / admin | Nominal |
| Lifecycle | Penal/late interest | As per schedule |
| Lifecycle | Rate conversion request | Fixed fee |
To do after disbursement
- Preserve original sanction letter & keep net-banking/loan portal activated.
- Obtain LOD (List of Documents) acknowledging original title deeds deposited.
- Collect amortization schedule; record any security cheques issued.
To do after paying it off
- Collect all original title deeds and verify with LOD.
- Obtain NOC/No-dues, ensure lien release and CERSAI charge closure.
- Check credit report ~45 days after closure to confirm “Closed” status.
