What is Loan Against Property? Features, Eligibility, Documents, and more

A Loan Against Property (LAP), also known as a mortgage loan, is a secured loan where individuals or businesses can pledge their residential or commercial property to access funds. This property-backed loan is ideal for meeting high-value financial needs such as business expansion, education, or medical emergencies.

What is a Loan Against Property?

Loan Against Property is a secured loan where the borrower can mortgage property—whether residential, commercial, or industrial—as collateral to the financer. This type of loan offers the dual benefit of allowing the borrower to continue utilizing the property while unlocking its value for various financial needs, such as business expansion, debt consolidation, education, or personal exigencies.

Characterized by lower interest rates compared to unsecured loans, LAP also typically provides a higher loan amount and extended repayment tenures, making it a preferred choice for those requiring significant funds at manageable costs. The process involves property valuation, thorough eligibility checks, and legal formalities to ensure that the lender’s interests are protected, given the substantial value involved.

As a secured loan, Loan Against Property or LAP presents a reduced risk for lenders, translating into more favourable borrowing terms for the applicant.

Also Read: All About Loan Against Property: You Asked, We Answered

Types of Loan Against Property

A Loan Against Property (LAP) is a secured loan where individuals pledge their residential, commercial, or rented property as collateral to access funds for personal or business needs. Understanding the different types of Loan Against Property can help you choose the right option based on your asset type, employment status, and end use of the funds.

Here are the most common types of LAP available in India:

1. Loan Against Residential Property

You can avail a LAP by pledging your self-occupied or rented residential property, such as a flat or house. These loans are ideal for raising funds without selling your assets and generally offer competitive interest rates.

2. Loan Against Commercial Property

Commercial properties like office spaces, shops, or showrooms can also be used as collateral. Loans against commercial property typically allow for higher loan amounts due to the property's higher market value.

3. Lease Rental Discounting (LRD)

LRD is a type of LAP where the loan is sanctioned based on the future rental income of a leased commercial property. It’s popular among property owners with stable rental inflows and long-term lease agreements with tenants.

4. Based on Applicant’s Employment Type

• Salaried Individuals: Employees working in government or private organizations can avail LAP with income proof and salary slips.
• Self-Employed Professionals or Business Owners: Requires business proof, income tax returns, and audited financials. Loan terms may vary depending on income stability.

5. Based on End Use of the Loan

• For Housing Purposes: Funds can be used for home renovation, purchase of another property, or construction.
• For Business Expansion: Business owners can use the funds for purchasing inventory, machinery, or scaling operations.
• For Debt Consolidation: LAP is also a great option for consolidating high-interest debts into a single, lower-interest secured loan.

Why Is a Loan Against Property Beneficial?

A Loan Against Property (LAP) can be highly beneficial for individuals and businesses seeking substantial funds for various purposes. Unlike unsecured loans, Loan Against Property is a type of loan that is secured by property, which often results in lower interest rates, making it a cost-effective borrowing option.

Loan Against Property provides the ability to leverage an asset while retaining its ownership and usage is a significant advantage of LAP. This type of loan offers higher loan amounts compared to other forms of credit, making it ideal for those requiring substantial funds.

Additionally, Loan Against Property, also known as LAP, typically offers longer repayment tenures, providing borrowers with flexibility in managing their finances. The funds obtained through Loan Against Property (LAP) can be used for a wide range of purposes, such as business expansion, debt consolidation, education, or personal needs.

Overall, the combination of lower interest rates, higher loan amounts, longer tenures, and versatile usage options makes Loan Against Property a highly beneficial financial tool for individuals and businesses alike.

What are the benefits of Loan Against Property?

Loan Against Property (LAP) has several key features that distinguish it from other types of loans:

• Secured Loan: Loan Against Property is a secured type of loan where the borrower offers their property (residential or commercial) as collateral to the lender. The property remains with the borrower but serves as security for the loan.
• Loan Amount: The loan amount in LAP is determined based on the value of the property pledged as collateral. Typically, lenders offer a high loan amount ranging from 70% to 80% of the property's market value. This is also referred to as Loan-to-Value.

Also Read: What is Loan to Value ratio (LTV) in a Loan Against Property?

• Interest Rates: Since LAP is a secured type of loan, it generally comes with lower interest rates compared to unsecured loans. The interest rate can be fixed or floating, depending on the lender and the terms of the loan.
• Repayment Tenure: Loan Against Property offers longer repayment tenures compared to other types of loans. This allows borrowers to repay the loan in smaller installments over an extended period.
• End-use Flexibility: The funds obtained through Loan Against Property can be used for various purposes, such as business expansion, education, medical expenses, debt consolidation, or any other personal needs.

Overall, Loan Against Property offers borrowers a way to unlock the value of their property to meet various financial needs, with the advantage of lower interest rates and longer repayment tenures.

What Documents are Required When Applying for a Loan Against Property?

When applying for a Loan Against Property (LAP), having the right documents is crucial to ensure smooth processing and approval. The loan amount is usually based on the Loan-to-Value (LTV) ratio, which ranges from 40% to 70% of the property’s current market value. To determine eligibility and property value, lenders require a detailed set of documents.

Key Documentation Requirements for LAP

Here’s a simplified list of the most commonly required documents for LAP:

Identity Proof (KYC Documents)

• Aadhaar Card
• PAN Card
• Passport
• Voter ID
• Driving License

Address Proof

• Utility Bills (Electricity, Water, Gas)
• Passport
• Rent Agreement
• Aadhaar Card

Income Proof

For Salaried Individuals:

• Latest 3–6 months’ salary slips
• Bank statements (last 6 months)
• Income Tax Returns (last 2–3 years)

For Self-Employed Professionals/Business Owners:

• ITRs for the past 2–3 years
• Profit & Loss statements
• Balance sheets audited by a CA
• Business registration proof
• Bank statements (last 6–12 months)

Property Documents

• Title Deed and Sale Agreement
• Approved Building Plan
• Occupancy Certificate (if applicable)
• Property Tax Receipts
• No Objection Certificate (NOC) from society or builder

Also Read: What Mistakes Should I Avoid When Applying for a Loan Against Property?

What is the Eligibility Criteria for Applying for a Loan Against Property?

Before you apply for a Loan Against Property, it's essential to understand the basic eligibility criteria set by lenders. These ensure that the borrower can repay the loan and that the mortgaged property meets required standards.

Key Eligibility Criteria for Loan Against Property

Age Range

• Salaried individuals: 21 to 60 years
• Self-employed individuals: 25 to 65 years

(Age may vary slightly across lenders)

Income Criteria

• A stable and regular income is mandatory
• Minimum income limits are usually set by lenders
• Salaried: Must meet minimum salary thresholds
• Self-employed: Should have consistent business income with valid financial proof

Credit Score

• A credit score of 650 or above is generally preferred
• A higher score increases your chances of loan approval and better interest rates

Property Ownership

• The property should be owned by the applicant
• It must have a clear, marketable title
• Must meet the lender’s minimum property value requirement
• Both residential and commercial properties may be accepted

Required Documents

• Proof of Identity (Aadhaar, PAN, Passport)
• Address Proof (Utility bills, Aadhaar, Passport)
• Income Proof (Salary slips/ITRs, bank statements)
• Property Documents (Title deed, tax receipts)

Existing Financial Obligations

• Lenders evaluate your current EMIs and debts
• A lower debt-to-income ratio improves your loan eligibility

Did you know? Borrowers can use an Loan Against Property Eligibility Calculator to understand if they are eligible for a loan before applying.

Also Read: Glossary- A Guide to Most Used Terms in Loan Against Property

Who Should Apply for Loan Against Property?

A Loan Against Property or LAP is an ideal option for individuals and businesses needing substantial funds at relatively low interest rates. It is particularly beneficial for business owners looking to expand their operations or manage working capital needs, as well as for salaried professionals and self-employed individuals who require significant financing for high-value purchases, debt consolidation, or personal financial goals such as education, medical expenses, or home renovations.

Property owners can leverage the value of their real estate without having to sell it, using the funds for various purposes while retaining ownership. LAP is also advantageous for those with multiple financial obligations, providing an opportunity to consolidate debts under one manageable loan. Overall, LAP is suitable for anyone seeking a large loan amount with the benefit of lower interest rates and longer repayment tenures, while utilizing their property as collateral.

Also Read: Loan Against Property vs. Other Loans- Making an Informed Choice

Godrej Capital offers Loan Against Property and Udyog Loan Against Property with higher loan amounts to meet your needs. You can secure this loan by mortgaging your residential, business, or commercial property. Discover more about competitive interest rates, an easy online application process, and minimal requirements for a hassle-free borrowing experience.

Godrej Capital also offers flexible loan facilities such as Flexi Funds, an Overdraft-like facility, offering borrowers the flexibility to withdraw and repay funds based on their needs and convenience from a certain sanctioned limit. To start the loan application process, Apply for a Loan with Godrej Capital.

Visit our Knowledge Centre to read and understand more about Loan Against Property.

FAQs

Q.1. Can I take a Loan Against Property?

A. Yes, you can apply for a Loan Against Property by using your residential or commercial property as collateral. This loan offers a higher amount and lower interest rates compared to unsecured loans.

Q.2. Can you get a 100% Loan Against Property?

A. A Loan Against Property is typically offered based on the loan-to-value (LTV) ratio of up to 70-80% of the property's value.

Q.3. Is a Loan Against Property a good idea?

A. Yes, a Loan Against Property can be a good idea due to its low interest rates and higher loan amounts. However, it's important to assess your repayment ability since your property is used as collateral.

Q.4. Is it safe to take Loan Against Property?

A. Yes, a Loan Against Property is typically safe as long as you have a reliable repayment strategy.

Q.5. What is the interest rate for a Loan Against Property?

A. The interest rate for a Loan Against Property differs based on the lender. At Godrej Capital, the rate of interest (ROI) typically starts from 9.75%.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements.
Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com