Whether you want to expand your business, fund your children’s education, or need to cover an unexpected expense, property loans have become an essential tool to raise substantial funds to achieve these goals. Loan Against Property is a financial instrument that allows you to leverage the value of your property while keeping ownership of it. This gives you the benefit of liquidity as well as asset ownership.
A Loan Against Property, often referred to as LAP, is a type of secured loan that lets you pledge your home or commercial real estate as collateral. The collateral reduces your lender’s risk, which means better terms for you. LAP typically has lower interest rates than an unsecured loan, making it an affordable way to access large sums of money.
Check out the insights shared by Ankit Bhatla where he shares the benefits and features of loan against property.
Benefits of a Loan Against Property:
1. Lower Interest Rates:
Because the loan is secured, lenders will usually provide you with a lower interest rate, making it a cost-effective borrowing option. The Loan Against Property EMI Calculator helps you find out the exact amount you would be required to pay.
2. Higher Loan Amount:
LAP offers access to larger loan amounts than a personal loan or other unsecured form of credit.
3. Flexible Tenure:
Property loans offer flexible repayment terms, allowing you to select a term that meets your repayment capacity while also being cost-effective.
4. Quick Process:
Lenders often expedite the approval process due to the collateral associated with the loan, resulting in the availability of funds in a relatively short period of time.
Tips for Securing a Loan Against Property:
Choose the Right Lender: It is important to conduct research and compare different lenders to identify the one that offers the right product variant with the most competitive interest rates, loan terms, and tenure. This can have a significant effect on the cost and repayment schedule of the loan.
Assess Loan-to-Value Ratio: Different lenders have different loan-to-value (LTV) ratios, which determines how much you can borrow against your property. Consider your financial requirements and choose a lender with an LTV ratio that is right for you.
Property Valuation: The lender will carry out a valuation of the property to establish its value. Although you may have an idea of the value of the property, the lender’s valuation may influence the approved loan amount.
Credit Health Matters: A loan against property may be secured, however, the credit score of the borrower is still a factor in determining the amount of interest and the terms of the loan. To maintain a good credit score, ensure that you pay off any outstanding debts and bills.
Repayment Capacity: Lenders assess your income, current Equated Monthly Installments (EMIs) and financial standing to determine your ability to repay. Keeping your debt-to-income ratio low can improve your eligibility.
The eligibility criteria for obtaining LAP in India may differ slightly from one financial institution to another. Nevertheless, there are certain common elements that lenders typically take into account when evaluating an applicant’s suitability for a loan. The following are the primary eligibility criteria to be aware of:
- Loan Against Property can be availed by salaried individuals, self-employed individuals, self-employed professionals, sole proprietorships, partnership firms, and private limited companies (including closely held public limited companies).
- Loan Against Property is offered to Indian Residents only.
- Most lenders have a minimum and maximum age criterion. Generally, applicants should be between 21 and 65 years of age. Some lenders might have variations in these age limits.
- Your credit history and credit score play a crucial role in determining your eligibility. A good credit score (usually above 700) indicates responsible financial behavior and enhances your chances of loan approval.
While the list of documents varies across lenders, salaried individuals need the following financial documents for availing Loan Against Property:
- KYC documents (ID & Address Proof)
- PAN Card copy
- Income documents (ITR, Salary Slips, Form 16, Balance sheet, etc.)
- Bank statement of the last 6 to 12 months
- Collateral documents, i.e., all documents related to the property being mortgaged.
Businesses need to produce:
- Audited ITR financials
- Bank statements of the main account along with other accounts as mentioned in the balance sheet
- Certificate of incorporation for companies
- Partnership deed and partnership authority letter (in case of a partnership firm)
- Shareholding patterns, board resolution, MoA, AoA in case of private/public limited company
8 Points to keep in mind before applying for Loan Against Property:
1. Loan Amount and Interest Rate:
It is important to determine the amount of funds required and ensure that the lender is able to provide the requested amount based on the value of the property. It is beneficial to compare the interest rates offered by various lenders to determine the most competitive rate. A lower rate can significantly decrease the cost of borrowing in the long run.
2. Loan Tenure:
Select the loan tenure that is in line with your ability to repay. A longer loan tenure may result in reduced EMI payments but may incur higher interest charges.
3. Eligibility Criteria:
Understand the eligibility criteria of the lender, such as your income, credit rating, and property value.
4. Legal Aspect:
It is recommended to seek the advice of a qualified legal professional to ensure that all legal matters pertaining to the property and the loan agreement are properly addressed.
5. Credit Score:
Loan approval and interest rates can be impacted by your credit score. It is important to maintain a high credit score.
6. Loan Insurance:
A credit protect insurance policy can help protect your family in the event of unexpected circumstances.
7. Hidden Costs:
It is important to be aware of charges that are applicable on the loan.
8. Exit Strategy:
It is essential to have a well-defined repayment schedule and to evaluate how the loan contributes to the attainment of long-term financial objectives.
With RBL Bank, you can now secure a loan amount of up to INR 10 Crores, benefit from flexible repayment plans extending up to 180 months, and have the assurance that various property types, including residential, commercial, and industrial, are all eligible collateral options.
To know more, click here.