Loan Against Property

Lease Rental Discounting (LRD) is a term loan offered against rental receipts derived from lease contracts with corporate tenants. The loan is provided to the lessor, who is the property owner,  based on the discounted value of the rentals and the underlying property value. LRD work on the premise of rented properties generates a fixed amount of rent for a specified long tenure. Tenants enter into a lease with the owner (borrower) of the property. This agreement mandates a regular payment which is known as rent. The property owner ( borrower) can use this inflow of rent for the duration of the lease period to borrow fund from financial institutions or banks.

The repayment process is streamlined, as rent is directly deposited by the lessee (Tenant) to the bank instead of going to the owner (borrower) and after deducting the EMI due, banker transfer the balanced fund to the Borrower (Lessor). Each bank has its own criteria as far as the amount of the loan against property is concerned. But, on an average one can get up to 70% of the property valuation as loan amount.

LAP is a product, which can be taken either in an individual name or in business. The usage of the fund too not mandated, except that such fund cannot be utilized for investing in the stock market or speculation transactions.

One can use the fund for various reasons:

– Personal Expenses: Children’s education abroad or financing family functions or medical emergencies or buying property or paying margin money while taking a property.

– A business expansion which is sizable in nature:  Installation of machinery, the opening of a new line of business or venturing into a new market, Technology upgrade, buying a property in a business name and providing margin money for a larger term loan are few of the example.

LAP offers below benefits to make the most preferred loan products among any property-backed loan:

– Lower interest rate: As the loan is taken keeping the property as collateral, the rate of interest is generally lower when compared to any other kind of loan.

– Lower to zero pre-payment charges: One can close LAP by making pre-payments towards the loan without attracting any penalty if the loan is in an individual capacity.

– Easy accessibility: As these are secured loans, lenders are more than willing to provide these loans.

– Longer tenure: These loans are generally available for longer tenure going up to 15 years. There is an inverse relationship between tenure and EMI. Longer the tenure lower will be the EMI and vice versa. As these are available for a longer tenure, these become suitable for people who can’t afford to pay higher EMIs. However, it is always advisable that a person should take a loan for the shortest tenure as the interest burden will be lower in case of short tenure loan.