Loan Against Property

Many renowned banks and NBFCs offer a loan against property to provide immediate financing to salaried and self-employed individuals. In contrast to a personal loan or a gold loan, a loan against property can be obtained at a lower interest rate if you own a property (commercial or residential).

In addition to being multipurpose loans, these types of loans can also be used for various expenses, such as a wedding, higher education, business expansion, home renovation, and medical expenses.

Here are some things you should consider before taking out a loan against your property. First, let's learn more about what they are.

What is a Loan Against Property?

Whether you're a salaried or self-employed individual, you can avail of a loan against property (LAP) to fulfil different kinds of financial requirements such as wedding expenses, higher education, business expansion, remodeling, medical bills, etc. Several factors are considered when determining the amount of a property loan, including the applicant's current liabilities, age, monthly income, credit history, etc.

The repayment period of this multipurpose loan is up to 20 years, resulting in a stress-free repayment process. When applying for a loan against property, you must be careful. You should keep a few things in mind before applying for one.

Things to know About a Loan Against Property

Here are a few things you must keep in mind when planning to apply for a loan against property.

1. Evaluate Your Property 

An immovable property (residential or commercial property) serves as collateral for a loan against property. For determining the loan amount you are eligible for, the bank runs an evaluation process based on the property's age, location, amenities, etc., and provides you with an amount of up to 80% of the property's value. Due to this, it becomes essential that the borrower is aware of the property's value in order to ensure that he receives the appropriate loan amount when pledging his property.  

2. Check Your Credit (CIBIL) Score

You will receive an interest rate on a loan against property based on your credit score, which is a numerical representation of how you have handled loans and credit card EMIs in the past.

You can get a loan against property at a lower interest rate if you have a credit score of 750 or higher. In contrast, if you have a low credit score, the bank is likely not to offer you a loan or to offer you a loan with a higher interest rate. The EMI amount must be higher for such loans. For this reason, if your credit score is good, you should apply for LAP without hesitation, and if it is poor, you should start paying the EMIs on time and wait for it to improve.

3. Compare Interest Rates

Applying for LAP with a bank isn't necessary if you already have an account there. Don't rush to the very first lender who makes you an offer. Over the next 15 to 30 years, the interest rate of your loan will have a huge impact on your EMIs.

Comparing interest rates between banks and NBFCs is therefore a good idea before applying for LAP. You can use loan aggregators such as Magicbricks available online to find the best loan against property offers with additional benefits. Using these platforms for comparison can save you time and effort. You will be able to choose the bank offering the lowest interest rate on Loan Against Property once you have completed the comparison.

4. Know the Eligibility Criteria

Each bank has its own eligibility criteria for LAP applicants. An individual who is 21 years or older can obtain a Loan Against Property from lender "A," while an individual who is 25 years old or older can obtain a Loan Against Property from lender "B.". A salary of Rs. 40,000 may meet the income criteria for lender "A," while a salary of Rs. 50,000 may meet the income criteria for lender "B".

In order to avoid rejection and get the desired loan amount, you should know the eligibility criteria of your chosen lender before applying for a loan with them. The eligibility criteria can be easily found on the lender's website or you can check the same by contacting their customer service team.

An application rejection will appear as a hard inquiry on your credit report and negatively affect your credit score. Any lender who checks your credit score before offering you a loan will also be able to see this hard inquiry. Multiple hard inquiries reflecting in your credit score may make  lenders consider that you have existing financial issues. They may hesitate to offer you a loan against property after getting to know about the same.

5. Analyse Your Loan Repayment Capacity

Your ability to repay a loan against property must be determined before you apply. Create a budget based on all your income and expenses to estimate your monthly instalment.

When you apply for LAP with a lender and the loan is approved, they usually charge a processing fee of up to 3% of the loan amount + GST. As well as prepayment fees, service charges, statutory charges, and even stamp duty may be charged by some banks. During the evaluation of the true costs of a loan, you should inquire about all these fees and make an informed decision.

6. Know the Documentation Required

 LAP applications are critical processes that require a lot of documentation due to the collateral involved. In spite of the fact that KYC documents (Aadhaar Card, PAN Card, Voter ID, Card, etc.) and property documents may remain the same for all individuals, income documents may vary depending on the type of employment.

It may be necessary to provide salary slips (last 3 months), bank statements (last 6 months), and form 16 if you are a salaried individual. The lender may also ask you for a bank account statement for the last 6 months, proof of business continuity, an ITR (the last 2 years), etc., if you are self-employed. To avoid any hassle or rejection in the future, make sure you know all the documentation required before applying for a loan against property with any lender.

As a whole, Loan Against Property provides flexible tenures of up to 20 years, a low interest rate, and no restrictions on end-use, which makes it a great way to get through financial crises. Consider applying for LAP if you plan to do so.

How to apply for a loan against property online

The lender’s relationship manager will take you through the rest of the process for a hassle-free borrowing experience within 24 hours of you making your application.