A loan against property is a secured loan that allows you to use your property’s equity as collateral for the loan. In this type of loan, the borrower offers the title to their immovable property as collateral for the loan and then uses it for whatever purpose they want.
This could be used by anyone who has an existing or inherited house that he/she wishes to use for personal reasons or any other reason. The person can procure a loan against property from Banks, NBFCs, MFIs etc. after pledging their property and hypothecating its title to the lender.
The amount one can borrow depends on the current worth of your pledged property and how much lenders are willing to lend against it based on various factors like age, income, credit history, the value of the property, etc.
Some lenders certainly offer better rates than others; some might have lower eligibility criteria and so on. We try to collate such information to help you choose the best lending institution that meets your requirements.
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What are the features of Loan Against Property?
First, the LAP is a secured loan. This means that you put up your property for collateral and use its value as security for the loan. In the event of non-repayment by the ‘assessee’ (borrower), your lender can seize and sell it to recover his dues.
Second, this type of loan does not offer any tax benefits under Income Tax Act but some lenders may offer full or partial tax benefits under Section 80C of the IT Act.
Third, since a loan against property is a secured loan, its eligibility conditions are relaxed and the interest rates are lower than unsecured loans, such as personal loans.
Fourth, you only get a percentage of the property’s value as a loan, also known as LTV. Usually, it varies from 50 to 80%, and it depends on your eligibility. You can use a loan against property calculator to understand your eligibility.
It is the most effective way to raise money quickly if you own a property with enough equity and need funds urgently.
How does Loan Against Property work?
You can avail a loan against your property by pledging it as collateral to a reputed financial institution or bank. The lender evaluates the property and your borrower’s profile to give you a loan offer based on their LTV policies. The rate of interest on the amount will be decided after negotiations between you and the bank, depending upon your eligibility and repayment capacity. You can usually avail a LAP for 15 years. LAP can be paid in easy monthly instalments, decided theaccording to the tenure you choose. The best part is that the interest rates are usually low or lower than those offered on personal loans.
What is the eligibility criteria to get a loan against property?
Each lender has different eligibility requirements but here are the common ones:
1. You must own a property (residential or commercial), which should be free from all encumbrances.
2. This section covers those people who have a good credit history, so banks require you to submit your credit score with your loan application form. A score of 680 and above is considered desirable by most lenders in this country .
3. Your monthly income should be sufficient enough to support the repayment of the loan amount, plus interest for the duration of repayment tenure chosen by you.
What are the documents required to avail loan against property?
Here is a list of documents requested with the application for a LAP:
1. Identity proof such as Voter ID, Aadhaar Card, passport or PAN card
2. Residence proof such as a recent utility bill (electricity or telephone bill) and your latest bank statement
3. Employment Proof – currently 2 months salary slips with the most recent bank statements from all linked accounts
4. Ownership document of the proposed security property which should match your name on the Address proof, i.e., Property Deed/Rent Agreement.
What properties can be covered under LAP? What is the genuine requirement for pledging property?
The types of properties that can be covered under loan against property include residential and commercial properties like apartments, real estate, commercial property, etc. The requirement for pledging property is that the property should be genuine and owned by you. LAP cannot be taken against properties jointly owned with someone else or a third party and the property should be free from all legal encumbrances.
It is important to ensure that Loan Against property is taken from a trusted lender, such as Muthoot FinCorp, that offer flexible repayments, attractive interest rates and a high LTV ratio.