When you consider a loan against assets, it is vital to understand the type of the asset that will make a considerable difference to the loan available. It is not just about the value of the asset; butseveral other factors about the respective assets, which affect the loan. Therefore, check out the following four differences between various types of loans against assets.
Loan Application Process:
The application process for an ideal loan against property takes a bit longer than others. The evaluation process of the property is much slower than other assets such as gold, fixed deposits, securities, luxury goods, etc. These kinds of movable as well as liquid assets can be evaluated much more quickly than immovable assets like real estate. Additionally, the documentation and eligibility for this kind of loan is quite different, which affects the loan application and approval process. For example: An unemployed person can receive a gold loan, but he/she cannot opt for LAP.
Loan Amount & Tenure:
The loan amount for all kinds of loans against assets is tied to the market value of the asset. The value of real estate is much harder to pinpoint than stocks, mutual funds, gold or FDs. But, it is also a much larger asset with a higher market value. In most cases, the real estate is the largest asset owned by borrowers. Therefore, you will get a bigger loan amount for a longer tenure. Gold loan tenure starts at about 6 months. It can be up to 2 to 3 years based on the amount of gold. However, the tenure for loan against property in India can be up to 15 years.
Processing Time & Fee:
All the loans against assets, including LAP, are secured loans. Therefore, the rates remain competitive and within the same range. However, the processing time for the LAP is much higher as the process for property evaluation is more complex. The market value of any property is based on neighbourhood, square footage, real estate market, demand, infrastructure, etc. So, the processing charges and the time required for loan approval is higher for LAP as compared to other loans like gold loans.
Purpose of the loan:
For most secured loans, this doesn’t make any difference to the lender. The housing finance companies in India are concerned about the LTV ratio, market value of the asset and repayment ability of the borrower. However, for borrowers, they are not interchangeable. The gold loan cannot be replaced easily by LAP as the amount of loan and tenure will be considerably different to resolve the same issue.