Financial troubles come in everyone’s life at some point. Loans are the best option to fight the cash crunch. Loans are always easy and convenient to get and you have multiple options as well. While there are personal loans available, the loan amount in some cases might not just be sufficient enough. Loan against property can be of great help when the loan required is higher than what can be availed through a personal loan. Loan against Property also known as LAP are considered as the cheapest secured loans in India and hence the monthly instalments are also low.

Basically Loan against property is a loan only where you keep your property whether commercial or residential as collateral or security and you borrow the money against it. But how much can be borrowed through a LAP? With a LAP you can avail a loan amount up to 40% to 65% of the market value of your property and with your property as mortgage.

Advantages of Loan against Property in India

Can Be Availed Easily

It is not tough to get a Loan against Property and all the top lending institutions in India offer this borrowing facility. All that is required are the papers of your property for the mortgage and there are no hassles in the process. You will get the loan amount shortly after that.

Low Interest Rates

When it comes to interest rate here also loan against property is quite a good option. The interest rate of LAP is always less than any personal loan. The interest rate of LAP will generally vary from 9.5% to a maximum of 13.75% whereas for a personal loan the interest rate varies from 10.99% to 24% p.a. This clearly demonstrates the advantage of a LAP over a personal loan.

Can Be Taken For Multiple Purposes

When you go for a loan against property then you can use it for numerous financial things such as- to expand your business, to renovate your house, for the higher education of your children, for bearing marriage expense of your children, for any medical emergency and for many more things.  Once you have the loan amount disbursed to your account you can use it as per your wish.

Long Tenor Period

The tenor period for the Loan against property will vary generally from 10 to 15 years. Since the loan amount that can be availed through a LAP is high, so the tenure for the repayment is also longer. This prevents the borrower from being over burdened with the monthly repayments. Owing to lower interest rates and longer tenure the monthly installments are also low.

Continued Ownership

When you take a loan against property, the ownership of that property whichever you give as collateral will remain with you only. You don’t have to give back the whole money to get the ownership. At any point of time when you are not able to repay the loan, you can sell your property according to your wish and from the money which you will get after selling you can settle your loan with the bank. So unlike a home loan where you do not have the ownership of the property until the loan has been repaid in full, LAP gives freedom to sell the property to repay the loan, if the need be.

Flexibility in the Loan Amount

In loan against property you have flexibility with the loan amount. Generally you can get a loan up to 40% to 70% of the net market value of your property. So it’s up to you that how much you want. You can take up to 70% according to your requirement, but is wise to borrow only as per the requirement.

Features of Loan against Property

This loan against property provides people a benefit to use their asset (property) in their financially down phase. It can be used either for any personal need or for Business needs as well.

  • The loan against property is processed quicker as compared to other loans. This is so on the ground that the security is now accessible.
  • For pre-closing there are no penalties or charges which means you whenever you have sufficient money you can pre-close this loan without any tension and extra payment.
  • It is a good approach to grow your business by utilizing the same property to take loan against and use it as a capital for your business. In this way you can grow your business in a smooth way.
  • One of the best thing about loan against property is that the ownership of the property is with the borrower only, it will not go to bank even when the property is as mortgage.
  • In the case when, the credit paying ability isn’t there, the borrower can mortgage the property and reimburse the loan.
  • When you go with loan against property it can give you large amount of money.
  • The interest rate for LPA is comparatively low. It’s a good option when comes to large amount of money borrowing.

Before You Go For Loan against Property Keep These Things in Mind

Loan against Property or a Home Loan: Understand Your Requirements

Don’t Borrow More Than You Need and Capacity

Don’t be greedy while borrowing. Borrow as much you need and that should be under your repaying capacity. If you do mistake while borrowing and borrow more at that time you may not feel but later you can face problem while repaying it. According to the basic thumb rule of borrowing and investment your monthly EMI should not cost you more than 60% of your monthly salary.

Always Opt For a Shorter Tenor

Basically the tenor period of a LAP is a maximum of 15 years. This long tenor makes this loan more tempt that people go for it. But the reality behind this fact is that when you go for a long tenor by doing this you are paying more on the interest which ends up with paying much more than the shorter tenor loan.

Understand the Fine Prints Completely

The loan documents are so long and some of us may feel it boring to read or some of us may not understand completely. But here is the mistake which you are making unknowingly which may cost you a lot latter. It is very important to read the document completely because it contains terms, conditions and policies regarding your loan. It is very important to each and every thing about your loan.

Loan with High Interest Rates Can Be Replaced With LAP

If you have many loans on you whose EMI are costing you much in that case you can go for loan against property as the interest rate of this loan is comparatively low. So you can take this loan and can use this to repay another loan i.e. for debt consolidation.

Who can avail a Loan against Property?

  • The applicant must be an Indian citizen or he/ she should be from Indian origin.
  • The applicant must own the property.
  • A good CIBIL score is always required to get a LAP.
  • The applicant must be working and should have a proper source of income it doesn’t matter whether he is a salaried employee or a self-employed person. The most important thing is his income.
  • The applicant’s total income, savings and financial condition will also be considered.

What are the documents required for Loan against Property? 

   For Salaried Individuals

  • Application forms with photograph of all the applicants with cross signatures.
  • Identity proof like Copy of Passport / Driving License/ Voter ID card / ID card issued by employer with signatures.
  • Address Proof which should not be more than three months old like Copy of Ration Card / Passport / Electricity or Phone Bill / Rent Agreement / Credit card statements / Property Papers.
  • Latest salary slips.
  • Form 16 or salary certificate showing the total salary and tax deducted from last two years.
  • Bank statement of the last 6 months validating regular income.
  • A cheque on account of processing fees in favour of the bank.
  • The documents for property mutually agreed by the bank and the borrower as security.

     For Self-Employed Professionals

  • Application forms with photograph of all the applicants with cross signatures.
  • Identity proof like Copy of Passport / Driving License/ Voter ID card / ID card issued by employer with signatures.
  • Address Proof which should not be more than three months old like Copy of Ration Card / Passport / Electricity or Phone Bill / Rent Agreement / Credit card statements / Property Papers.
  • Proofs of office address location.
  • Proof of educational qualification.
  • Proof of the existence of self-service or occupation.
  • Income tax returns copy (ITR copy) of the latest three years for individual and business.
  • Profit or Loss computation of the latest three years validated by an authorized CA.
  • Bank statement of the last 6 months validating regular income for individual and business.
  • A cheque on account of processing fees in favour of the bank.
  • The documents for property mutually agreed by the bank and the borrower as security.

For Self-Employed non-Professionals

  • Application forms with photograph of all the applicants with cross signatures.
  • Identity proof like Copy of Passport / Driving License/ Voter ID card / ID card issued by employer with signatures.
  • Address Proof which should not be more than three months old like Copy of Ration Card / Passport / Electricity or Phone Bill / Rent Agreement / Credit card statements / Property Papers.
  • Proofs of office address location.
  • Proof of business profile (position in the company).
  • Income tax returns copy (ITR copy) of the latest three years for individual and business.
  • Profit or Loss computation of the latest three years validated by an authorised CA.
  • Bank statement of the last 6 months validating regular income for individual and business.
  • A cheque on account of processing fees in favour of the bank.
  • The documents for property mutually agreed by the bank and the borrower as security.

You can analyse yourself now that- loan against property comes with many benefits but some risk factors are also there associated with it. Since the property is kept as collateral (security) with the bank, which makes it a secured loan. But, in case if you fail to repay the loan, the lender (Bank/ NBFCs) has the complete right to auction your property and recover the money by selling it. Losing your property is the worst thing that can happen but if you are a defaulter will have to pay penalty and your credit score will also decrease as well. If one has a doubt in his repayment capacity, then loan against property is never a good option to them. One should go for LAP only when someone is certain and sure about their cash flow and sure servicing EMIs on time.