A Loan Against Property (LAP) is a solution that lets you use the value of your property to secure funds for various purposes. Whether it’s for expanding your business, furthering education, or handling emergencies, LAP offers a way to access substantial funds without having to sell off your assets. Wish to know more? This article will help you understand the basics of taking a Loan Against Property, discussing its advantages, the application process, and the factors influencing the interest rate on loans. So, let’s begin!
What Exactly is a Loan Against Property?
A loan against property involves using your commercial property as collateral to secure a loan. Typically, the loan amount granted is a percentage of the property’s market value, ranging from 50% to 70%*. This kind of loan is particularly suitable for individuals seeking sums of money and favours interest rates compared to unsecured loans.
Advantages of Opting for a Loan Against Property
Now that you are aware of the meaning, the next thing in line is understanding its benefits. Let’s take a quick look:
- Higher Loan Amounts: Lenders are more willing to provide loan amounts by offering property as security. This enables borrowers to finance expenses or investments that may not be feasible with loans. The increased loan amount can offer support for substantial projects.
- Interest Rate Reduction: The interest rates for property-backed loans generally fall between 11% and 17%*, making them more affordable than loan options. This lower interest rate leads to cost savings over the loan term, making it an appealing choice for borrowers. By paying interest, borrowers can better manage their resources.
- Versatile Usage: The funds obtained from these loans can be used for a variety of purposes, including expanding a business, consolidating debts, or covering expenses. This flexibility enables borrowers to address needs using a single loan product. Whether investing in a project or handling costs, the loan can be customised to meet individual requirements.
- Extended Repayment Period: Loans against property typically offer repayment durations of up to 15 to 20 years, resulting in manageable monthly instalments. The extended tenure helps lessen the strain, allowing borrowers to maintain their cash flow effectively. This extended repayment structure provides peace of mind by ensuring loan obligations are met without causing pressure.
Qualifications and Application Procedure
To apply for a property-backed loan, applicants must fulfil eligibility criteria that may vary from lender to lender. Generally, both employed and self-employed individuals are eligible if they possess a property that can serve as collateral. Let’s take a look:
Eligibility Requirements
- Age: Applicants must fall within the age range of 21 to 65.
- Income: Proof of income is necessary to demonstrate the ability to repay the loan.
- Property Ownership: The property intended for a mortgage must be under the applicant’s name and free from legal complications.
Application Procedure
Application Submission: Complete the loan application form and provide documents such as proof of identity, address, income, and property ownership.
- Property Evaluation: The lender will assess the market value of the property through an inspection and valuation report.
- Loan Approval: Based on the property valuation and eligibility criteria, the lender will approve a loan amount. Set an interest rate for the Loan Against Property.
- Funds Disbursement: Upon approval, the loan amount will be transferred to your account.
Factors Impacting Loan Against Property Interest Rates
Several factors influence the loan against property rate of interest for a loan and against property, affecting borrowing costs. Understanding these factors can help you secure terms.
- Credit Score: A higher credit score indicates creditworthiness, resulting in higher interest rates.
- Property Type and Location: Properties located in areas or in condition may qualify for lower interest rates.
- Loan Amount and Duration: Higher loan amounts or longer repayment durations could lead to interest rates.
Having a consistent income can give lenders confidence in your ability to repay, potentially leading to a lower Loan Against Property rate of interest. When applying for a Loan Against Property, the required documents must be ready to speed up the process. Typical documents include proof of identity such as an Aadhaar, PAN card, passport or voter ID; proof of address like utility bills, rental agreement or passport; proof of income such as salary slips, bank statements or IT returns; and property-related documents like title deed, property tax receipts and approved building plan.