Glossary: A Guide to the Most Used Terms in Loan Against Property
Getting a Loan Against Property (LAP) can be a smart financial move, whether you’re looking to expand your business, fund your child’s education, or meet other significant financial goals. However, like any financial endeavor, understanding the terminology associated with LAP is essential to make informed decisions. In this glossary, we break down some of the most commonly used terms in the world of Loan Against Property:
1. Loan Against Property (LAP): A loan secured by pledging your residential or commercial property as collateral. LAP allows you to unlock the value of your property while retaining ownership.
2. Collateral: The property (real estate) that you offer as security for the loan. In the event of default, the lender can take possession of this property to recover the outstanding loan amount.
3. Lender: The financial institution or bank that provides you with the LAP.
4. Borrower: You, the individual or business entity that receives the LAP and is responsible for repaying it.
5. Principal Amount: The initial loan amount you borrow from the lender before interest.
6. Interest Rate: The cost of borrowing the money, expressed as a percentage. It can be fixed (remains constant throughout the loan tenure) or variable (fluctuates with market conditions).
7. Tenure: The duration over which you agree to repay the LAP. It’s typically measured in months or years.
8. EMI (Equated Monthly Installment): The fixed monthly payment you make to repay the LAP, comprising both principal and interest components.
9. Prepayment: The act of repaying a portion or the entire LAP before the scheduled tenure ends. Some lenders may charge a prepayment penalty, while others offer prepayment flexibility.
10. Foreclosure: Closing the LAP account by repaying the entire outstanding amount before the tenure ends.
11. Processing Fee: A one-time fee charged by the lender for processing your LAP application. It covers administrative expenses like document verification and credit checks.
12. Loan-to-Value Ratio (LTV): The ratio of the LAP amount to the property’s current market value. Lenders typically offer LAPs with an LTV ratio of 50% to 80%, depending on various factors.
13. Default: Failing to make the agreed-upon EMI payments or violating any other terms and conditions of the LAP agreement.
14. Fixed-Rate LAP: A LAP with a stable interest rate throughout the tenure, ensuring consistent monthly payments.
15. Floating-Rate LAP: A LAP with an interest rate that fluctuates based on market conditions, potentially resulting in variable monthly payments.
16. Amortization Schedule: A table that outlines the repayment schedule of your LAP, specifying the principal and interest components for each EMI.
17. Disbursement: The process through which the lender releases the LAP funds to you after approving your application.
18. Credit Score: A numerical representation of your creditworthiness, which lenders use to assess your eligibility for a LAP and determine the interest rate.
19. Security Documents: Legal documents that transfer the property’s title to the lender temporarily as security until the LAP is repaid in full.
20. Loan Agreement: A formal contract outlining the terms and conditions of the LAP, including interest rate, tenure, and repayment schedule.
Understanding these terms is crucial when considering a Loan Against Property. It enables you to make well-informed decisions, choose the right lender, and manage your LAP effectively, ensuring your property serves as a valuable financial asset on your journey towards achieving your goals.
