How is repayment structured in Lease Rental Discounting?

Lease Rental Discounting (LRD) is a loan offered by financial institutions against rental income from leased properties. The repayment structure for such loans is usually straightforward and revolves around the expected cash flow from the lease agreements. Here’s how it is generally structured:

• The applicant repays the LRD loan in equated monthly instalments (EMIs) over a tenure of up to 15 years. The EMI amount is calculated based on factors such as the loan amount, interest rate, and tenure.
• The rental income from the leased property is directly assigned to the banks or Non-banking Financial Companies (NBFCs). The loan provider deducts the EMI amount every month from this rental income before passing on the balance amount to an applicant.
• The interest rate on LRD loans can be fixed or floating. Fixed rates keep the EMIs unchanged over the tenure, while floating rates may vary depending on market conditions.
• Applicants often have the flexibility to prepay the LRD loan either partially or fully during their tenure. While this prepayment can bring down the overall interest outgo, some charges may apply as applicable.
• The loan provider ensures that the underlying lease agreement for the property is valid and binding, at least for the loan tenure. This ensures that the repayment corresponds directly to the expected rental cash flows.