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Loan Against Property – All You Must Know

by Joanna Lewis
in Business
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Loan Against Property – All You Must Know
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You need finances throughout your life for various reasons – may it be planning your marriage, investing in a business idea, or closing your medical requirements. Here’s where your property and land act as a massive asset and security against which you can avail of a loan. As a loan against property is a kind of secured loan, the rate of interest is lower, and the approval chances are even high. For instance, the current Canara bank loan against property rate ranges between 9.80 % and 11.85 % p.a., while the Bank of Baroda loan against property ranges between 9.65 % and 15.30 % p.a. 

A loan against property scheme is even known as a mortgage loan where various parameters like loan repayment tenure, property kind, credit score and your profile will decide your loan against property interest rate. 

Benefits and features of loan against property

When you place an application for a loan against property, you tend to get it at a typical rate of interest between 8 per cent and 25 per cent p.a. You can get it at a maximum repayment tenure of 20 years. And the processing charges may range anywhere between 1 % and 3 % of the loan proceeds, excluding GST. Now let’s look at various beneficial features of LAP – 

∙       Hassle free approval and documentation – 

Real estate in the form of buildings or land has asset value, and thus, getting secure loans, here, in this case, is quicker than an unsecured loan. Documents of the property ownership serve as a security in this scenario and thus permit you fast and easy approval. 

  1. Low-interest rate on loan against property – Secured loans like loans against property typically come with low-interest rates than unsecured loan options. The chances of availing of a loan are high if you have a strong credit score and record.
  2. Retained ownership of an asset – Be at peace because offering collateral or property does not mean that the ownership is changing hands. It is just that, in case of your non-repayment of loan EMI, the lender may make a property sale. 
  3. Flexible loan repayment options – Depending on the financial institutions or banks from whom you want to borrow the loan proceeds, you get the option to select from a good variety of flexible tenures for as high as 20 years. 
  4. Potential to pre-close – You can select to go for the loan against property pre-closure if you require. If a loan against property, for example, endows the choice of a variable rate of interest, you can opt for a loan pre-closure without the need to make payment for loan penalties. You might, however, require paying a small proceed if LAP comes with a fixed rate of interest. 

Checking your eligibility for a loan against property

Availing from a loan is a massive step. You must ensure that you have conducted the required research to know about your appropriate income requirement and eligibility for a loan. For example, you cannot avail loan against property without income proof. Mentioned here is a detailed criterion – 

Salaried – 

Salaried individuals looking to avail loan against the property must meet the listed criterion – 

∙       Must have an age ranging anywhere between 18 and 60 years

∙       Must be an Indian resident

∙       Must possess a bachelor’s degree

∙       Must be employed in a partnership firm, private, public, multinational or government company

∙       Must fetch a monthly income equaling Rs 40,000 or above

Nonprofessionals/self-employed 

Any nonprofessional or self-employed individual must have the listed criterion – 

∙       Must be at least 21 years of age when applying for the loan

∙       The maximum age must not be over 65 years 

∙       Must be the owner of a business that has been operational for nearly 3 years

∙       Must be the owner of a business that declared a profit for the last 2 years

Important documents required for availing loan against property – 

It is best that you are prepared with the required documentation to get a loan against property approval faster. Here are mentioned the important documents for loan against property – 

∙       KYC documents like identity proof, PAN card, address proof, ownership proof, etc. 

Salaried – 

∙       Salary slips for the past three months

∙       Employment proof in the occasion of employer mentioned in form 16 is not the same

∙       Form 16

∙       Bank statements for the past six months to show any existing salary & EMI repayments

Nonprofessionals or self-employed –

∙       Business continuity proof with any of the documents involving tax registration under GST registration, VAT, service tax, shop, establishment certificate, etc. 

∙       Audited financials for the last three years

∙       Constitution proof with any documents involving a form 32, partnership deed, AOA, GST registration certificate, MOA, etc. 

∙       Most current GST or VAT returns, service tax for the current financial year

∙       Business account statements

∙       Any sanction letter for the existing loans along with statements that show EMIs of the last few years

Determining the loan against property duration

While the rate of interest and EMI of a loan against property are important to factor in, you must even understand how loan tenure can impact the borrowing cost. If you check the online loan against the property calculator, for instance, you will see that the higher the loan amount, the longer will the repayment tenure be, which will not impact your financial stability or create any monthly budget stress. For instance, if you are availing loan against property, then you can assume getting a flexible repayment tenure, which ranges anywhere between 1 and 20 years. 

Also Check and Apply for: Bank of Baroda loan against property

Your age even plays a major determining role. For example, if you want to avail a loan against property for study or vacation purposes in your early 20s, you may opt for a long-term repayment tenure. Likewise, if you are near your retirement age, you must go for a shorter loan tenure as your level of income might stop or drop post-retirement. If you are nearing retirement, it is recommended to select from the range of loan against property for the pensioners. Likewise, if you are just a new credit user who is young, it is possible for you to have a poor credit history, which may cause trouble for you to avail yourself of a low rate of interest on a loan against property. Here’s where you must still opt for a loan against the property option, and later upon improving your credit score, ask your lender to re-structure your loan account and lower your interest rate on the loan against property.

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