A loan against property, often called LAP, lets you borrow money by pledging property you already own as collateral. Unlike a home loan, the funds can be used for almost any purpose. This guide explains how it works.
The Simple Idea
You own a property, residential or commercial. Instead of selling it, you pledge it as security for a loan. The lender assesses the property’s value and offers you a loan based on a percentage of that value, typically 50-70%.
How It Differs From a Home Loan
A home loan is specifically for buying, building, or renovating a property, and that exact property secures the loan. A loan against property uses a property you already own as security, but the funds can go toward nearly anything, business needs, education, medical expenses, or debt consolidation.
How Much Can You Borrow?
This depends on your property’s assessed value and the lender’s specific loan-to-value policy. Most lenders offer 50-70% of the property’s market value, sometimes higher for very strong applicant profiles.
Interest Rates on Loan Against Property
Rates typically run 9% to 14% per annum, lower than most unsecured personal loans, since the property provides substantial security for the lender.
Eligibility Criteria
Clear, undisputed ownership of the pledged property
Stable income, salaried or self-employed
A reasonable credit score, though requirements are often more flexible than unsecured lending, given the collateral involved
Property that meets the lender’s own valuation and legal criteria
Documents Required
KYC: PAN, Aadhaar
Property documents: title deed, sale agreement, previous ownership chain
Income proof: salary slips or ITR, depending on employment type
Property valuation report, usually arranged by the lender
What Happens If You Can’t Repay?
The lender can initiate formal proceedings to recover the outstanding amount, potentially including sale of the pledged property, following due legal process. This is a genuine risk worth understanding clearly before pledging property you rely on.
Loan Against Property vs Personal Loan
FactorLoan Against PropertyPersonal LoanCollateralProperty requiredNoneTypical rate9-14%11-24%Loan amountCan be largeUsually smallerApproval speedSlower, valuation neededFasterRiskProperty at risk if you defaultNo specific asset at risk
A Worked Example
Borrow â‚ą30,00,000 against a property, at 11%, over 10 years. Your EMI runs roughly â‚ą41,300. Compare this to the same amount as an unsecured personal loan, unlikely to be available at this size for most applicants, but if it were, at a much higher rate, the EMI would be substantially larger.
When a Loan Against Property Makes Sense
For a large funding need, where you own qualifying property and are comfortable pledging it. Business expansion, education funding, or consolidating multiple high-interest debts into one lower-rate loan are common, sensible uses.
When It Might Not Be the Right Choice
If the amount you need is small, relative to the property’s value and the paperwork involved, a personal loan may be simpler and faster. If you’re not genuinely comfortable with the risk of pledging a property you rely on, this is worth weighing carefully before proceeding.
Can You Use LAP to Consolidate Other Debts?
Yes, this is a common and often financially sound use. If you’re carrying multiple high-interest debts, credit cards especially, consolidating them into a lower-rate loan against property can produce substantial interest savings, given the meaningful rate gap between secured and unsecured borrowing.
How Long Does Approval Take?
Longer than an unsecured personal loan, typically 1-3 weeks, given the property valuation and legal verification involved. This is worth factoring in if your need is urgent.
Frequently Asked Questions
Can I use a loan against property for any purpose?
Yes, generally. Unlike a home loan, there’s no restriction tying the funds to a specific property-related use.
What is the maximum amount I can borrow against my property?
Typically 50-70% of the property’s assessed market value, though this varies by lender and your specific profile.
Is a loan against property cheaper than a personal loan?
Usually yes, since the property collateral reduces the lender’s risk, translating into a lower interest rate than most unsecured personal loans.
What happens if I default on a loan against property?
The lender can pursue formal recovery, potentially including sale of the pledged property, following due legal process outlined in your loan agreement.
Can I get a loan against property if the property is jointly owned?
Possibly. Lenders generally require all relevant owners to provide consent and may require them to join the loan or mortgage documentation.
Conclusion
A loan against property can provide larger funding at a lower interest rate than many unsecured loans, but the trade-off is significant: your property becomes collateral. Before choosing LAP, compare the interest savings with processing costs, tenure, and the risk of losing the property if you cannot repay. For a large, planned financial need, it can be a cost-effective option when the EMI comfortably fits your repayment capacity.
Have property you could use to consolidate high-interest debt? Check your options with TapTap across 20+ lenders.
