A loan for house construction can be a game-changer when it comes to financing a new home or house construction. However, many homeowners may not realize that a Loan Against Property (LAP) is another effective financing option that could help them achieve their goals. One of the key aspects to consider when opting for an LAP is the LAP interest rate.
What is a Loan Against Property (LAP)?
A Loan Against Property, abbreviated as LAP, is a type of secured loan where you can pledge your property as collateral in order to obtain money. Ideally, this kind of loan will be suitable for those who possess residential or commercial properties but for some reason do not have financial support for home construction or renovation.
How does LAP Interest Rate Work?
Interest charge for LAP or loan against property: The amount the lender demands you to pay in interest from the money s/he lends back from your house. It ranges differently from institution to institution as well as relies upon various bases. These Bases are divided into three classes as follows:
Property Value: The value of the property you are pledging as collateral determines the loan terms. Lenders generally offer loans up to 60-70% of the market value of the property, and the higher the value of the property, the better the LAP interest rate you may receive.
Credit Score: Your credit score is a crucial factor in determining your eligibility for a loan and the interest rate charged. Borrowers with higher credit scores are considered lower risk, and therefore, they may enjoy more competitive LAP interest rates.
Benefits of LAP for House Construction
- A loan for house construction can provide you with a dream home, but most homeowners do not understand that sometimes, an LAP is a better choice. Here’s why:
- Lower Interest Rates: As discussed above, LAP interest rates are comparatively lesser than a personal loan. This can save a lot of money, especially in large construction projects.
- Larger Loan Amount: Since the loan is secured with property, the lenders are willing to offer larger amounts of loans compared to an unsecured loan. If you need a huge amount of money to build or renovate a house, then LAP can be a good option.
- Flexible Repayment Terms: LAPs usually provide flexible repayment terms; you can opt for a tenure that suits your financial capacity. This flexibility eases the monthly burden of the repayment, thus making it comfortable for homeowners.
LAP Interest Rate vs. Loan for House Construction
While LAP and loan for house construction are both home-building financial aid, they are different in approach. Here’s a comparison between the two:
- LAP: This is a loan against property where your property acts as collateral for a secured loan. It usually has a higher loan amount, but the rates of interest are comparatively lower than in the case of unsecured loans. It’s a nice one for taking funds for construction and when you have existing property assets.
- Loan for House Construction: This is a dedicated loan especially for constructing a new house. The loan amount is usually tied to the value of the project, and the interest rates are competitive but slightly higher than LAP. A loan for house construction can offer specialized features, such as progressive disbursement based on construction stages.
How to Choose Between LAP and Loan for House Construction?
When deciding between a loan against property and a loan for house construction, consider the following:
- Existing Property: If you own a property and need a substantial loan, an LAP might be a more cost-effective option with lower interest rates and higher loan amounts.
- Purpose of the Loan: If you need finance purely for construction, a house construction loan may come with features such as stage-based disbursements that can help smoothen the process.
- Repayment Capacity: Analyse your repayment capacity and choose a tenure suitable for your financial situation. The two loans have flexibility, but the terms will differ from one lender to another.
Conclusion
The competitive interest rates and flexible terms associated with a Loan Against Property make it an excellent option for financing your house construction. Understanding how LAP interest rates work will, therefore, allow you to make an informed decision on whether this type of loan is right for your needs.
