Should you go for Loan against Property (LAP) or Top up Loan?
By Anupama Deshpande | Mar 21, 2019

Loan against property is a type of secured loan. Loan against Property is offered against a property which is held as security or collateral by the lender. The property mortgaged can be residential, commercial or industrial. The borrower doesn't need to disclose the reason of availing a loan against property. The tenure for Loan against Property ranges from 3 years to 15 years.

The loan amount under Loan against Property is decided on the basis of current value of the property to be mortgaged, credit score of the applicant and his/ her capacity to repay the loan. It is a more feasible option when you have a property to pledge as mortgage for the loan.

One must also know the Documents Required for Loan against property (LAP) before applying for it.

If you already have an existing & active home loan and you need some amount to cover some unforeseen expenses, you can avail top up loan. If you have been very consistent in paying up the home loan, you can be easily offered a top up loan on the home loan.

Getting a top up on your home loan is hassle-free and it just requires basic documentation to be submitted. Usually banks do not levy any foreclosure charges on the top up loan. It comes under the category of unsecured loan as you are not required to submit any additional security to avail this loan.

In case of both the loans i.e. Top up Loan or Loan against Property, the additional amount can be used for any purpose as long as it is not speculative in nature. Most of the banks are also trying to keep the interest rate on top-up loans closer to interest rates on loan against property (LAP). People can avail a top-up or LAP to consolidate other loans which means repaying off other existing loans like vehicle loan, business loan or personal loan, as it will work out cheaper.

Suggested reading Why to Choose Top-up Home Loan for Meeting Emergencies?

In order to find out should you go for loan against property (LAP) or top up loan, it is necessary to know that a Loan against Property (LAP) has many benefits over a Top up Loan which include:

In Loan against Property (LAP), you may avail a higher loan amount than a Top-up Loan. The top up loan which you will get will not realign or change your home loan outstanding hence the loan amount will be less.

While a Loan against Property (LAP) can be availed of against a different residential or commercial property while a Top-up Loan will only be based on the property against which the original home loan is taken. This flexibility allows you to both avail of a higher loan amount and spread your liability.

Related Topic What's More Beneficial? Home Loan Balance Transfer or Balance Transfer with Top-up Benefit

A Loan against Property (LAP) can be availed for a longer term than a Top-up Loan. The maximum tenure of the top up loan can be only till the original tenure of the home loan, it cannot be extended beyond that time frame.

In order to apply for a top-up loan, you must have an existing and active home loan in order while Loan against Property (LAP) is available even when you do not have existing home loan.

As compared to an LAP, the only considerable advantage of a top-up home loan is a lower interest rate while a Loan against Property (LAP) has many advantages over a Top-up Loan, so it is prudent for a person to opt for Loan against Property (LAP) instead of a Top-up Loan.

However, it is to be remembered that if the person has availed home loan which is still existing and the house is already mortgaged to the bank for a home loan, an LAP might not be possible on the same property at the same time.

The person should prioritize his/her requirements and then check and compare various loan options offered by several banks, HFCs and NBFCs for LAP as well as top up loan before actually opting for the loan.

You must also know the Key differences between Loan against Property (LAP) and Personal Loan & which one is better?