Sunaina Arora has recently started her herbal cosmetics business in Jaipur. Overwhelmed with a positive response and to meet the growing demand for her products, Sunaina now wants to increase the scale of production. Scaling up definitely needs more funds. When she thought of applying for an unsecured loan, she was amazed to see the high interest rate, which she would have to bear for years. She shared this with her Chartered Accountant who suggested to her the other more viable option of availing a Loan against Property. Sunaina realized that she could unlock the potential of her residential property (apartment in suburb) by using it as a loan collateral and secure an affordable loan against property.
A loan against property is basically a secured loan provided by public and private banks or Non-Banking Financial Companies (NBFCs). If you own a property, you can easily mortgage it with a bank or NBFC and avail of the loan for any business or personal requirements. By making most of the equity in owned property, you can access a good amount of capital as a loan in a quick process at competitive interest rates.
A loan against property (LAP) can be quite rewarding for individuals and businesses looking for funds to either expand their business or raise working capital.
Generally, a bank or an NBFC approves the credit amount as an LTV percentage to the property’s current value in the market. The property can be self-occupied or rented or can also be a piece of land that you own. The only thing that is critical here and based on which the possibility of loan dispersal decides is that the title of the property should be clear.
The purpose of Loan Against Property
- To expand your business
- To pay for a medical emergency
- To collect funds to plan the wedding of your child
- To fund the education fees of your child
- To plan a business travel
The benefits to avail Loan Against Property
Secure money
While availing a loan against property, one can secure a large sum of money that can be either equal to or at least 70% of the current value of the property. One can avail the credit in the range of Rs 5 lakh to Rs 5 crore, as per the market value of the property.
Utilise funds as per your need
There is no limitation on the use of the funds from the lender. You are free to use the credit for your own purpose, which may be to expand your business, purchase a property or an asset, plan for a wedding, arrange for international business travel, pay for healthcare expenses, etc.
Long tenure
With a loan against property, you can enjoy a repayment tenure up to 15 years. The longer the tenure of the loan, the lower is your EMI.
No restrictions on property
After availing of a loan against property, one can continue to use it. There are no restrictions on the property from the lender.
Loan for all
All kinds of consumers can benefit from loan against property in India, whether they are salaried, self-employed professionals, or business owners.
Easy process
The process of taking a loan against property is quite easy and quick. It is a secured loan and the banks or NBFCs willingly disburse the credit.
Interest rates
Being a secure loan, lower interest rate is levied on LAP, particularly when you compare with an unsecured loan, such as a personal loan.
Features of Loan against Property
Eligibility
Both salaried and self-employed persons can apply for a loan against property. However, there may be slight variations in the process of application in the case of each lender. The lenders consider the income, completeness of documents, and credit history of the applicant along with the value of property in the market before assessing the eligibility for LAP.
Some of the basic eligibility for applicants include-
- The applicant should be an Indian citizen (resident or non-resident) with a regular monthly income source.
- The applicant should be a primary owner of non-agricultural residential or commercial property.
- He/She should be between 18 to 75 years of age; however this varies as per credit policy of lenders.
The loan applicant may either submit an application in their own capacity or together with another eligible person. Applying with a co-applicant is usually helpful when you need a higher amount of loan against your property.
| Criteria | Age limit | Income |
| Salaried employee | Between 33 to 58 years | The applicant should be working in a multinational corporation, a private company, or the public sector |
| Self-employed | Between 25 to 70 years | The applicant should be self-employed with regular income |
* These are indicative eligibility criteria only.
Documentation
To successfully avail the loan, it is important to produce the documents as per the ask of the lender. If all the documents are accepted by the lender, then the loan can be processed and credited to your bank account in two days. Therefore, before you apply for the loan against property in India, it is important to obtain the list of required documents from the lender to make sure that you have them all.
Here is the list of documents that the lenders usually require –
- Proof of identity
- Proof of residence
- Proof of income
- Employment contract for salaried applicants
- Documents of property
- Bank statement for the last 6 months
- Applicant’s photographs
- A cheque for the processing fee
Application processing
Once all the information is verified and the documents are as per the mandatory requirement from the lender, the application is sent for further verifications. The process may also require a field visit to assess the property against which the loan is applied.
Know about the total cost & applicable charges
Other than the interest rate that applies to the loan amount, the loan applicant may also have to bear some other charges such as processing fee, loan stamp duty, and charges as mentioned in the loan document.
Loan disbursement
If all goes well, the loan is sanctioned directly to your bank account. If the credit amount is higher, it may be disbursed in two or more installments.
Loan repayment
Usually, the maximum loan repayment time offered for LAPs is 15 years. However, some lenders may charge prepayment charges in the case of partial or full prepayment.
Transfer to another lender
Sometimes, it is wise to keep looking for better rate of interest offers after you have availed the loan. In case you find another lender offering better LAP terms, you can transfer the loan from the existing lender to the new one. The new lender will provide the check in the name of the old lender to close the loan. However, make sure that your savings from loan transfer don’t go away in the applicable charges.
5 things you should see while choosing the lender
- Low interest rate: You should do a comparison of the interest rates offered by at least two to three loan providers.
- Low overall costs: Keep in mind the other costs attached to the loan against property, such as processing fees, loan prepayment charges, etc. Together, all these costs make for the total cost of the loan.
- Easy application process: Always opt for the lender who has a user friendly application process. You should enquire and get help from the representative of the lender in filling up the application.
- Eligible loan amount: Make sure the lender is offering you the desired loan amount. However, it is always advisable to assess the repayment feasibility before taking a loan amount.
- Easy repayment: Make sure that the lender can provide you with an option to customize the loan repayment schedule as per your income pattern so that you can regularly pay back your loan monthly without any financial pressure.
Frequently Asked Questions about Loan Against Property
Which financial institutions provide loan against property?
The public banks, private banks, and the non-financial banking institutions provide loan against property. This loan is provided against residential properties, commercial properties, or land.
What kind of properties can be mortgaged for loan against property?
One can apply for a loan against property keeping their residential and commercial property as collateral. The key ask from the lender is that the property meet their valuation criteria and the applicant must possess a clear title deed.
Who can avail loan against property?
Both salaried and self-employed persons can avail of loan against property. The lender usually approves the credit amount which is 70 to 100% of the market value of the property.
What are the various terms and conditions applicable for loan against property in India?
Each lender has different terms and conditions to provide a loan. One should compare the offers of a few lenders to understand what they are offering and the kind of documents that they require to process a loan against property.
What should I keep in mind while taking out a loan against property?
Most banks or non-banking financial companies may offer a variable rate of interest in loan against property. However, this kind of interest rate goes up when the market interest rates rise. You may feel caught up in the rising interest rate situation as it will directly push up your EMI money or the loan tenure.
Union Mortgage
https://www.unionbankofindia.co.in/en/details/union-mortgage
All You Need to Know About a Loan Against Property
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