Gone are the days when taking a loan was seen as a last resort to meet financial needs. Today, a loan is a widely used tool as indicated by India’s rapidly expanding loan market. Among the various loan options available, a loan against property(LAP) is a popular option for those who own any kind of property. Interestingly, the loan against property market is expected to touch approximately USD 858 Billion by 2026. If you are considering this financial option, read on to learn about a loan against property and some of its important aspects.
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What Is a Loan Against Property
A loan against property is a secured loan that allows individuals to borrow money by pledging their property or plot as collateral, be it commercial, residential or industrial including warehouse. The individual retains ownership of the said property and can continue to use the property as before. This collateral remains mortgaged with the lender until the borrower has repaid the entire loan amount. The loan amount is decided based on the market value of the property being pledged. This is a multi-purpose loan and can be used to meet any financial obligation, whether it is starting a new business or paying for higher education.
Important Things You Should Know About a Loan Against Property
Loan Amount
The quantum of the loan disbursed is determined by the property’s market value and the lender’s loan-to-value (LTV) ratio. The lender will conduct an independent survey of the pledged property to determine its current value. Typically, lenders offer loans ranging from 60% to 80% of the property’s value.
Documentation
To initiate a loan against property, you must provide essential documentation to prove your eligibility and ownership of the pledged property. Make sure the property you offer as collateral is registered in your name. If more than one individual owns it, all the legal owners must apply for the loan together. Necessary documents include property title deeds, income proof, identity proof, and address proof.
Interest Rates and Tenure
Loan against property interest rates are lower than those of unsecured loans like personal loans. This is because any probable loss can be recovered by the lender with a claim on the collateral offered. Interest rates offered by the lender depend on factors like the loan amount, the property’s market value, the borrower’s creditworthiness, the loan tenure, and market conditions. Comparing interest rates offered by different lenders can help you secure a favourable interest rate.
A key loan against property benefit is the longer repayment tenure. Lenders offer tenures ranging from 1 to 20 years. Keep in mind that while a longer tenure makes for more affordable EMI payments, it does increase the overall cost of borrowing.
Overdraft Facility
This feature allows you to withdraw funds as required from a predetermined credit limit during the loan tenure. Interest is charged only on the amount utilised, making it a cost-effective option.
Option to Foreclose the Loan
Borrowers have the option to foreclose the loan against the property, allowing them to repay the outstanding amount before the scheduled tenure ends. Additional foreclosure charges are to be paid depending on terms and conditions of the sanctioned loan.
Eligibility Criteria
To qualify for a loan against property, certain eligibility criteria must be met. Factors such as age, income, employment status, credit score, and property ownership details play a crucial role in determining eligibility.
Additional Fees
Finally, it is important to take into account any additional fees that the lender may charge before sanctioning a loan against property. This would include a processing fee, which is usually a percentage of the loan amount and differs for various lenders and insurance premium.
A loan against property can be an excellent alternative to a personal loan. With higher loan amounts offered, lower interest rates, quicker approval time, and a longer repayment tenure, a loan against property is the ideal loan option for those seeking to access hefty funds for various purposes.
