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Loan Against Property (LARP): A Smarter Route to Big Capital without Liquidating Your Asset

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  Published in Business and Finance on Wednesday, December 24th 2025 at 15:20 GMT by ThePrint
      Locale: Delhi, INDIA

Loan Against Property (LARP): A Smarter Route to Big Capital without Liquidating Your Asset

In an economy where the cost of living, business expansion, or unexpected expenses can quickly outpace regular savings, a growing number of Indians are turning to Loan Against Property (LARP) as a flexible, cost‑effective solution. The Print’s feature, “Loan against property – a smarter way to access large funds without selling your asset,” lays out why LARP is gaining traction, how it works, and what borrowers need to keep in mind when exploring this option.

1. What Is a Loan Against Property?

A Loan Against Property is a secured loan where a borrower pledges real‑estate as collateral. Unlike a regular home loan, the borrower already owns the property; the loan simply enables them to tap the equity locked up in it. The property can be a residential flat, a landed house, or even a commercial space – as long as the lender deems it eligible.

The core appeal lies in two key aspects:

2. Why LARP Is Gaining Popularity

Lower Interest Rates

Because the loan is secured by a tangible asset, banks can offer lower rates than unsecured credit cards or personal loans. Rates typically range from 8.5% to 12% per annum, depending on the lender, the borrower’s credit profile, and the loan-to-value (LTV) ratio.

Higher Borrowing Limits

Lenders usually allow borrowers to take up 70–80% of the property’s appraised value. For a 2‑BHK flat worth ₹40 lakh, you could access up to ₹32 lakh. This is a significant advantage over unsecured loans, which often cap at ₹10–15 lakh.

Flexible Repayment

Unlike a home loan that follows a fixed amortization schedule, LARP repayment is often more flexible. Some lenders allow borrowers to repay the principal and interest in a single lump sum or offer interest‑only payment options in the short term.

No Impact on Property Usage

Because the loan is a separate contract, the borrower retains full use of the property during the loan tenure. The only restriction is that the property must be kept intact – no major modifications or sale until the loan is cleared.

3. Eligibility and Key Criteria

4. The Application Process

1. Property Appraisal
   A professional valuator from the bank or a third‑party agency estimates the market value. The final loan amount is capped at the lower of the appraised value or the LTV limit.

2. Document Collection
   • Identity proof (Aadhaar, PAN, passport)
   • Income proof (salary slips, Form‑16, business turnover)
   • Property documents (title deed, encumbrance certificate, sale deed)
   • Photographs and floor plans (if required)

3. Credit Check & Processing Fees
   Banks levy a processing fee (typically 0.5–1% of the loan amount) and may require a guarantee from a co‑debtor.

4. Disbursement
   Upon approval, funds are credited to the borrower’s account. LARP disbursals are usually faster than home loans because the property is already owned.

5. Repayment
   The borrower can opt for monthly EMI, quarterly installments, or lump‑sum payment at the end of the loan tenure. Some lenders provide “interest‑only” modes for the first 3–6 months, allowing borrowers to pay the principal later.

5. Pros and Cons

Pros

• Lower rates, higher amounts
• Fast processing
• Asset remains intact
• Flexibility in repayment

Cons

• Risk of foreclosure if payments are missed.
• Higher processing fees than unsecured credit.
• Potential legal hassles if property documents are not clean.

6. Tips for Choosing the Right Lender

1. Compare LTV Ratios – A higher LTV gives you more money, but may come with a higher rate.
2. Look at Total Cost of Borrowing (TCB) – Include processing fees, legal charges, and insurance.
3. Check the Bank’s Reputation for Property Valuation – Some banks underestimate property values, giving you a lower loan amount.
4. Read the Fine Print – Some lenders impose pre‑payment penalties or require a co‑debtor.
5. Ask About Loan Tenure Options – Shorter tenures mean lower total interest but higher EMIs.

7. Common Use Cases

• Business Expansion – Start‑ups and SMEs often use LARP to fund working capital, inventory, or expansion projects.
• Higher Education – Many students secure a LARP to pay for overseas tuition or advanced degrees.
• Home Renovation – Instead of a home loan, a borrower can tap property equity for renovation or upgrade.
• Debt Consolidation – Combining multiple high‑interest loans into a single LARP with a lower rate.

8. How LARP Fits Into the Bigger Picture of Indian Finances

India’s banking system has historically relied on secured credit for large disbursements, particularly in the real‑estate and manufacturing sectors. LARP is a natural extension of this model, offering individuals a way to convert idle equity into working capital. As the economy becomes more capital‑intensive and the property market more liquid, LARP stands out as a cost‑efficient alternative to unsecured credit.

However, the risk profile remains higher than a conventional home loan because the borrower can’t benefit from the appreciation in property value during the loan tenure. Consequently, banks adopt stringent appraisal procedures and maintain a conservative LTV policy.

9. Frequently Asked Questions (FAQs)

10. Takeaway

Loan Against Property offers a pragmatic solution for individuals needing substantial capital without wanting to sell their home or land. By leveraging the equity in their existing assets, borrowers can secure lower interest rates, flexible repayment, and relatively quick disbursements. Nonetheless, the security of the property makes it imperative to maintain a disciplined repayment schedule and to ensure that all property documents are in order.

Before stepping into a LARP, borrowers should compare multiple banks, scrutinize the terms, and calculate the true cost of borrowing. With the right due diligence, a loan against property can unlock significant financial leverage, enabling everything from entrepreneurial ventures to educational pursuits while keeping the borrower’s real‑estate asset intact.