Financial troubles are a situation that can happen to everyone. Taking personal loan for your financial problems can be an option. But if you need a large sum, getting a personal loan will not be enough.
In such cases, you can mortgage a property on your side and obtain a loan in higher amounts than the banks. Banks give loans for property. You must carefully select the property to mortgage and you must have certain characteristics in order to benefit from this loan against property.
Loan Against Property What Banks Can Offer?
If you own a property, you can use this type of loans easily. Banks generally give credit to you by looking at the market value of your property. This value is up to 70% of your residential or commercial property.
For an example; you have a property worth $ 200,000. By mortgaging the bank, you want to use a real estate loan. The bank can give you a credit worth $ 140,000. For customers using loans against property, banks can offer a 30 year repayment plan.
Although the interest rates of each bank vary, banks generally give an interest rate of 10-15% for LAP.
Loan Against Property Eligibility Criteria
You must have some eligibility criteria for loan against property. The eligibility criteria sought by the banks can be listed as follows:
- You must have a monthly income regularly.
- Owning a commercial property or residence.
- The higher the value of your property, the higher the credit you will get depending on the value of your commercial property.
- The credits you have used before, the credit cards you have used, and any payments you have made will be considered.
- You must have a clean background for the banks.
FAQ’s about Applying for a Loan Against Property
1. What is a Loan Against Property (LAP)?
A Loan Against Property (LAP) is a secured loan where you pledge your residential, commercial, or industrial property as collateral to a financial institution to borrow funds. This loan can be used for a variety of purposes, such as business expansion, medical emergencies, education, or even personal needs.
The loan amount is generally a percentage (up to 70%-80%) of the property’s market value. The interest rates on LAP are typically lower than unsecured loans because the property is used as security, reducing the lender’s risk.
2. How can I apply for a Loan Against Property?
To apply for a Loan Against Property, follow these steps:
- Step 1: Research and compare different banks and financial institutions that offer LAP. Focus on interest rates, loan tenure, eligibility criteria, and loan-to-value (LTV) ratio.
- Step 2: Check your eligibility. This typically includes factors like income, age, property value, and repayment capacity. Some lenders also consider your credit score and existing liabilities.
- Step 3: Gather the required documents. These usually include proof of identity (Aadhaar, passport), address proof, income documents (salary slips, bank statements, ITRs), and property documents (title deeds, tax receipts).
- Step 4: Submit the loan application form with the required documents either online or at the bank’s branch.
- Step 5: The bank will evaluate your application and the value of the property through a legal and technical verification process.
- Step 6: Once approved, the loan amount will be disbursed to your bank account, either in lump sum or installments, depending on your agreement with the lender.
3. What types of properties are eligible for a Loan Against Property?
The types of properties eligible for a Loan Against Property include:
- Residential Property: This can be a self-occupied house, a rented house, or a vacant house owned by the borrower.
- Commercial Property: Office spaces, retail outlets, or any other commercial property can be pledged.
- Industrial Property: Certain industrial properties may also be used as collateral, depending on the lender’s policies.
- Mixed-Use Property: A property that serves both residential and commercial purposes can also be considered, depending on the lender’s criteria.
The property must be free of legal disputes and have clear ownership documentation. Some lenders may also accept leased properties with specific terms.
4. What are the interest rates and tenure for a Loan Against Property?
Interest rates for a Loan Against Property typically range between 8% to 14% per annum, depending on the lender and the borrower’s creditworthiness. Factors that influence the interest rate include:
- Property Value: Higher-value properties may attract lower interest rates.
- Borrower’s Profile: Your income stability, employment type, and credit score can affect the interest rate.
- Loan Tenure: LAP can have longer tenures, usually ranging from 5 to 20 years, which makes the Equated Monthly Installments (EMIs) more affordable. However, longer tenures may result in higher overall interest paid on the loan.
It is recommended to choose a tenure that balances affordable EMIs with the overall interest outgo.
5. What are the risks and benefits of taking a Loan Against Property?
Benefits:
- Lower Interest Rates: Since LAP is a secured loan, it usually has lower interest rates compared to personal loans or business loans.
- Large Loan Amount: You can borrow a substantial amount depending on the market value of your property, making it ideal for significant financial needs.
- Flexible Usage: The loan can be used for various purposes like business expansion, debt consolidation, education, or personal expenses.
- Longer Tenure: The repayment period can be as long as 20 years, offering flexibility in managing EMIs.
Risks:
- Risk of Property Loss: In case of default on loan repayment, the lender can seize your property as it serves as collateral.
- Longer Tenure Increases Interest Outgo: Although longer tenure reduces EMI pressure, it increases the total interest you’ll pay over time.
- Reduced Liquidity: By mortgaging your property, you reduce its liquidity, meaning you cannot sell or use it for other financial purposes while the loan is active.
To mitigate risks, ensure you have a solid repayment plan and choose a tenure and loan amount that align with your financial situation.
