How Does Your House Come To Your Protection
02 Dec 2014
Ever faced a situation where you needed some additional funds – for buying a new car; wedding in the family; or for business expansion… ? Did you end up taking a high-interest a personal loan? Or had to sell some small asset? Well it needn’t be so anymore, if you own a house or any other property.
LAP: Making your property a liquid asset.
Taking a LAP (or Loan against Property) is one of the cheapest and arguably the most prudent way to utilize your asset to finance your needs.
In LAP, the loan amount sanctioned is a specific percentage based on the value of the property. Other factors that help determine your eligibility are your income sources and your repayment track record of the existing loans you have.
Amounts disbursed under LAP are transferred to your personal account and can therefore be utilized for any of the following purposes: –
- Funding higher education
- Marriage expenses
- Paying for high medical costs
- Investment or expansion in business
- Funding vacations
Buying new car etc.
Reduce your debt burden ; Consolidate with a LAP
The convenience of Debt Consolidation and the scale of Umbrella Loan to cover different expenses are two standout features of LAP.
While each purpose is unequivocally important, the fact that LAP allows debt consolidation gives it a notable advantage. It basically means that you can take one single loan against your home to repay all your other high-cost debts – like personal loans or credit card bills where your interest rates can be from 18% to as high as 42% p.a. Not to say the convenience of keeping track of one single loan only.
Comparing LAP with a Personal Loan
Personal Loan is another type of finance facility that can be used to fulfil the same purposes as LAP. So what makes the LAP more favorable? Well, here are a few reasons why: –
LAP is a secured loan i.e. you are going to use your asset, your property, as a collateral. Alternatively, a Personal Loan is unsecured. In other words, it is backed by your repayment capacity.
Higher loan amount. The loan amount in LAP is going to be much higher since it will be determined on your property value and your income sources. In comparison, a Personal Loan will be determined solely on your income and will be much lower.
Lower Interest rates. The bank will find you a more credible lender since collateral is involved. That translates to the fact that the interest rates will be much more attractive (12%-15% p.a.). Conversely, personal loans require no collateral, but the caveat is that the interest rates offered will be much higher and in the range of 18-24%, or in case of credit cards even 42% p.a.
Longer repayment tenures and lower EMIs. Since LAP is a long term loan, the repayment tenure for a LAP is normally above 5 years. That means that the EMIs will be spread over a longer term and will be lower. For a personal loan, the loan duration is typically 1 to 3 years and the EMIs will be significantly higher.
Higher loan amount, lower interest rates,longer tenures and lower EMIs make LAP the more preferable option.
Property – A good form of leverage
When you take a Loan against Property, you utilize your asset to finance high value expenses. When taking a LAP, the smart thing to do is to plan your finances sensibly so that you can repay the loan without any hiccups. That way, you can fulfil your expenses comfortably while retaining your asset i.e. your property.