Wednesday, June 7, 2023

Loan against Property: An In-depth Guide

Home Business & Finance Loan against Property: An In-depth Guide

In today’s real estate market, properties are assets. A property can either be utilized as one’s home or as a source of rental income. The same property can also help the owner obtain a large capital through a loan against property. An LAP is a secured loan that one avails of by keeping their residential or commercial property as collateral. The primary requirement of a loan against property is that the owner of the property must have complete authority over that property. In this in-depth guide to LAP, we have answered some of your frequently answered questions on the topic.

Why Should One Avail of a Loan against Property?

LAP interest rates are relatively lower as compared to a personal loan. The loan against property interest rate ranges from 8 to 16 per cent, making it one of the cheapest loans. The tenor can go up to even 30 years, which may be profitable with low EMIs.

What Is the Loan Amount Sanctioned in a Loan Against Property?

The value of a property plays a crucial role in fixing the loan against the property amount. Generally, lending institutions sanction a loan of approximately 65% of the property value. However, apart from the value of the property, lending institutions consider several checkpoints like the payment record of a borrower, their savings, income, and the stability of business or employment.

What Are the Factors that Influence Loan against Property Eligibility?

The LAP eligibility criteria is different as compared to the eligibility criteria for unsecured loans like a personal loan where an individual’s income decides the eligible loan amount. While LAP eligibility criteria varies from one lender to another, a few factors are common and considered by all lenders. These include the applicant’s income, savings, and repayment track record. The repayment track record includes previous loans and credit card dues. 

Besides, the property’s market value is also considered. An applicant’s employment status, age, and financial stability are also considered before sanctioning the loan against property amount. Generally, lenders prefer that customers continue being employed until their loan is fully paid off. This is why the maximum age-at-maturity of LAP for a salary-earning individual is 60 years as it is the retirement age followed by most Indian organizations. However, in the case of businessmen and/or self-employed professionals, the age-at-maturity may be higher, let’s say 65 years.

What Are the Documents Needed For A Loan Against Property?

The basic documents required include proof of address, identity, income, age, and educational qualification. Lenders also ask for property ownership documents. One may also have to provide bank statements of the previous six months and a cheque for processing fees.

List of Documents Needed for Loan Against Property

For salaried individuals

· Identity proof

· Form-16

· Proof of residence

· Cheque for loan processing 

· Past three months’ payslips

· Past six months’ bank statements particularly from the salary account

For Self-Employed Individuals

· Identity proof

· Proof of residence

· Proof of educational qualification 

· I-T returns for past three years

· Bank statements for last six months

For Working Professionals

· Residence proof

· Identity proof

· Proof of educational qualification 

· License and registration certificates

· Proof of business existence

· Current business profile

· I-T returns for past three years, profit and loss sheet, balance sheets

· Bank statements for last six months

What Is the Loan against Property Interest Rate?

The loan against property interest rate ranges from about 8% to 16%.

What is the Usual Loan against Property Tenor?

The loan against property tenor can extend up to 15 to 20 years.

What Can a Loan against property Be Utilized For?

A loan against property is a great way to arrange for funds to meet high expenses. One generally uses LAP for the following purposes:

 – Weddings

 – To start a new business or expand an existing one

 – To buy new properties

 – Further studies

 – Money for medical exigencies

 – Foreign vacations

Before availing a loan against property, one must compare their lending options. One must not be hung up on the loan against property interest rates offered to them; instead, explore various verticals as well. One must also pay a closer look at aspects like processing fees, foreclosure charges, pre-payments, penalty charges, and loan to value (LTV) ratio. 

The Final Word

Considering all elements of a loan against property, it offers a good option to raise money to finance a significant expense. The possible disadvantage of a loan against property could be that inability to repay can lead to the lender taking possession of the property. Nevertheless, if one accurately plans their finance and interest payments, a loan against property can be repaid on time and without any hassle. To know more, get in touch with our experts today.

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Aditya Sehgal
Aditya Sehgal is a notified blog and tech writer. He is a financial adviser too and can guide you for the same.

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