Choosing between a Loan Against Securities (LAS) and a Loan Against Property (LAP) depends on your specific financial objectives. LAS provides rapid disbursal and flexibility for short-term needs without selling investments, while LAP offers significantly higher borrowing limits and longer tenures, making it ideal for substantial, long-term capital requirements.
If you need funds, you might first think of selling your investments or assets. But what if you could access money without letting go of them? That is where options like a Loan Against Securities (LAS) and a Loan Against Property (LAP) come in.
With this, you can use what you already own—either your financial investments or your property—to raise funds while still holding on to your assets.
Asset-backed loans are financial products that require collateral to secure funds. The two primary types of asset-backed loans are:
Loan Against Property (LAP): A secured loan where you mortgage a residential or commercial property to borrow funds.
Both options allow you to unlock liquidity without selling your assets, but their features and benefits cater to different financial requirements.
A loan against property is a secured loan where borrowers pledge their residential, commercial, or industrial property as collateral to obtain funds from a lender. The property remains in the borrower’s ownership while the lender holds security rights until the loan is repaid. These loans are commonly used for business expansion, education expenses, medical emergencies, or other financial requirements. The loan amount generally depends on the property's market value, repayment capacity, and lender policies. Since the loan is secured against property, interest rates are often lower compared to unsecured loans, making it a preferred financing option for many borrowers.
A loan against securities (LAS) is a secured loan facility where investors pledge eligible financial assets such as shares, mutual funds, bonds, or insurance policies to access funds without selling their investments. The pledged securities continue to remain invested while serving as collateral for the loan. The sanctioned loan amount usually depends on the value and type of securities pledged. Loan against securities is commonly used to meet short-term liquidity requirements, business expenses, or emergency financial needs. Since the loan is backed by investments, lenders may offer comparatively lower interest rates than unsecured borrowing options.
When choosing between LAS and LAP, understanding the differences between pledging securities and mortgaging property is crucial.
| Aspect | Loan Against Securities (LAS) | Loan Against Property (LAP) |
|---|---|---|
| Collateral | Financial assets like shares, mutual funds, etc. | Residential or commercial property |
| Loan-to-Value (LTV) | Up to 50% (90% for mutual funds) of the value of securities | As per lender norms and property valuation |
| Interest Rates | Generally lower | Higher compared to LAS |
| Tenure | Short-term (to 36 months) | Long-term (up to 15 years*) |
Your investment portfolio can serve more than one purpose. Beyond building long-term wealth, it may also help you access funds when financial needs arise.
Please note: All these factors can vary on each lender basis.
If you need funds urgently, the processing time of a loan can be a critical factor. LAS is known for its quick disbursal. Since there is no need for immovable property valuation or title and search report, LAS approvals can be completed quickly and, in a hassle-free manner.
In contrast, LAP requires detailed immovable property evaluation, title and search report, which can extend the processing time to several weeks. If speed and convenience are your priorities, LAS may be the better choice.
Choosing between LAS and LAP depends on your financial goals and the type of asset you are willing to pledge.
Many investors choose to leverage mutual fund investments instead of redeeming them during temporary financial needs. This approach allows them to maintain their long-term investment strategy while accessing funds when required.
Both LAS and LAP come with certain risks that borrowers should be aware of:
The value of your pledged securities may fluctuate due to market conditions. If the value drops significantly, the lender may issue a margin call, requiring you to provide additional collateral or repay a portion of the loan.
If you fail to repay the loan as per the agreed terms, the lender may initiate recovery proceedings, which can include the sale or auction of the mortgaged property to recover the outstanding dues. Careful financial planning and timely repayments can help mitigate these risks.
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Both LAS and LAP are valuable financial tools for accessing liquidity without selling your assets. While LAS is ideal for short-term needs and offers quick disbursal, LAP is better suited for larger loan amounts and longer repayment tenures.
Your investment portfolio can be more than just a wealth-building tool. With the right financial strategy, it may also help you meet short-term liquidity needs without disrupting long-term financial goals.
By understanding the differences between LAS and LAP, you can make an informed decision that aligns with your financial needs and objectives. Both options offer unique advantages, and choosing the right one can help you achieve your goals while preserving your wealth.
Loan Against Securities is better for short-term liquidity needs with quick disbursal. However, Loan Against Property may be more suitable for larger loan amounts and longer repayment periods.
Pledging securities involves using financial assets like shares or mutual funds as collateral, while mortgaging immovable property means using real estate as collateral.
Loans against shares or mutual funds are processed within a few hours or days, due to no property valuation requirements.
Yes, your investments continue to earn returns even when they are pledged as collateral for a loan.
The LTV ratio for LAS varies based on the type of security pledged. For instance, loans against shares may offer up to around 50% of the value, while mutual funds can offer a higher LTV, sometimes going up to around 90%, depending on the fund type. In the case of insurance policies, the loan amount is typically linked to the surrender value, with LTV going up to around 80% as per lender terms. For LAP, it is evaluated as per the property’s market value and lender policy.
While a high CIBIL score is beneficial, LAS is primarily secured by your financial assets, which may make it easier to obtain even with a moderate credit score.
You can use your listed shares, mutual funds, and insurance policy as collateral for a Loan Against Securities.
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