Loan against Property in India

What is Loan against Property?

A Loan against property or LAP is a loan given by the lender to the borrower against the property mortgaged.

Unlike the unsecured loan, the loan against property involves a security that is the property, which the borrower can mortgage in case the loan is not repaid by the borrower. Hence, it is a type of mortgage loan.

In such loans, the market value of the property is calculated and the loan furnished is a certain percentage of the market value of the loan.

For what purposes can LAP be taken?

Loan against property (LAP) has the low interest rates which can be used for business or personal finance purposes:

  1. These loans can be used for expansion of the business and meeting the credits of the business and bonafide needs.
  2. The loans are easy to avail so they can help in case of an urgent medical financing.
  3. The loans are also useful to facilitate the renovation or repair/extension purposes in the house or flat.
  4. The loan can be used if there is a marriage in the house.
  5. The parent can use this loan for sending the child abroad for higher studies.
  6. One can use the loan to fund a vacation to an attractive tourist destination.

What kind of properties can be mortgaged for LAP?

A property owned or rented by a person can be used against Loan against property. One can use these loans against a house, under-construction house or a piece of loan. All the co-owners of the property will have to apply for the loan.

The process of Loan against Property

The applicant will tell the property details to the bank. The bank's research team will then do a market analysis and evaluate the property price. Then, the loan amount will be decided. The borrower's loan property will be attached to his loan account. At the later stage, if the loan is not repaid to the lender, then the bank holds the jurisdiction to mortgage or resale the property.

Loan against Property v/s Home Loan

There are many differences between both the types of loans:

  1. A home loan can only be used for the purpose of buying a house, or constructing it or improving it. On the other hand, a loan against property can be used for any purpose; business or personal.
  2. Home loans offer the cheapest rate of interest. Loan against property are the second cheapest loans in India.
  3. Home loan is against a property that is not yet owned by you. However, loan against property can be taken against a property that is already owned by an individual.
  4. The loan tenure is usually more in case of the home loan than the loan against property.

Personal Loan or a Loan against Property

There are many differences between both the types of loans:

  1. No security or guarantor is required for a personal loan. For the loan against property, the person needs to provide his property as collateral.
  2. Loan against property has a lower rate of interest as compared to the personal loan. The rate of interest for loan against property is 10% to 16%. However, for personal loan it is 11% to 21%.
  3. The equated monthly installments are higher for personal loans and cheaper for loan against property.
  4. Loan against property is a secured loan because a security is given. Personal loan is an unsecured loan.
  5. The loan tenure is 5 years in maximum for personal loan, however for Loan against property it is 15 years.
  6. The amount of loan sanctioned depends on the market value of the property in case of a Loan against property. For personal loan, it depends on the income of the borrower.

Tax Benefits of Loan Against Property

One can avail tax benefits for loan against property under two sections:

Principal repayment under Section 80C: The tax deduction under this scheme is for the repayment of the principal loan amount for the loan against property. The maximum tax deduction under the scheme is INR 150,000. The deduction can be claimed only if the construction of the property is complete, not during the construction.

Home loan interest repayment under Section 24: The tax deduction under this scheme is for the repayment of the interest amount for the loan against property. The maximum tax deduction under the scheme is INR 200,000.

General Features & Benefits of Loan against Property

There are many benefits of a loan against property:

  1. A person can use his asset that is the property in the time of need for business and personal use.
  2. The loan against property is processed relatively faster. This is so because the security is already available.
  3. In case of the foreclosure of the loan, no penalties or charges are imposed. This way, the loan can be reduced in a shorter way and the burden on the borrower will be reduced.
  4. It is a brilliant way to expand the business by using the same property to finance the business capital needs and then, expanding the business. It is a smooth and efficient way if multiplying one's source of incomes.
  5. The best part is that the borrower continues to be the owner of the property and does not have to repay the whole loan to get back the ownership.
  6. In case, the loan paying capability is not there, the borrower can mortgage the land and repay the loan. The borrower might be left with an extra amount to invest more in the business.
  7. The loan is a good choice when drawing huge amount.
  8. The loan leads to a lesser EMI option and enhanced loan tenure.
  9. The rate of interest is comparatively low.
  10. It is a good debt consolidation tool.

Eligibility Criteria for Loan against Property

  1. The person must be a citizen of India or a person of Indian origin.
  2. The foremost eligibility criterion is that the borrower must own the property or given it for rent.
  3. The person must be working and drawing regular income. He can be salaried, working professional, or a self-employed businessman or entrepreneur.
  4. The total income, savings, and the financial constraints like already existing debts will also be considered.
  5. A good CIBIL score will help you getting the loan.

Documents Required for Loan against Property

  1. For Salaried Individuals
  • Application form 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.
  1. For Self-Employed Professionals
  • Application form 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.
  • Proof 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.
  1. For Self-Employed non-Professionals
  • Application form 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.
  • Proof 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.

Top Providers for Loan against Property

The following banks are the top providers of the loans against property:

  1. State Bank of India
  2. TATA Capital
  3. Kotak Mahindra
  4. Union Bank
  5. Yes Bank
  6. Indian Bank
  7. Bank of Baroda
  8. Kotak Business Loan
  9. Central Bank
  10. Oriental Bank of Commerce
  11. HDFC Ltd
  12. Axis Bank
  13. ICICI Ltd
  14. Citibank
  15. PNB Housing Finance
  16. Federal Bank
  17. Bajaj Finserv
  18. Ing Vysya

It is advisable to look at the following table and understand which bank offers you the best loan with great services:

Lender (Bank or FI)

Interest Rate

Processing Fees

Loan Tenure

SBI (State Bank of India)

12.45% -14.95%

2%-3%

1-4 years

TATA Capital

12.50% -19.50%

1%-2%

1-6 years

Kotak Mahindra

11.49%-20.15%

1%-2%

1-5 years

Union Bank

14.40%

0.50%

1-5 years

Yes Bank

14%

Less than 2%

1-5 years

Indian Bank

12.65%-13.65%

0.50%

3 years

Bank of Baroda

14%

1,000 INR - 10,000 INR

1-3 years

Central Bank

9.70%

500 INR

1-3 years

Oriental Bank of Commerce

12.65%

0.50%

1-5 years

HDFC Ltd

11.49%-19.8%

Less than 2.5%

1-5 years

Axis Bank

9.50%

1%

1-5 years

ICICI Ltd

11.49%-18.49%

2.50%

1-5 years

Citibank

11.49%-20%

0.25%-2%

1-5 years

PNB Housing Finance

10.75%-13%

0.90%

1-6 years

Factors to be considered before going for Loan against property:

There are many factors to consider before you choose the lender for your loan against property. Look at the following 5 features:

  1. If your CIBIL score is less than 620, there is less probability of your loan getting furnished. Therefore, you must improve your CIBIL rating for a secured loan against property. If you have paid your previous loans on time, there is a good chance of your CIBIL score being high.
  2. If a bank gives you more against of loan against the same market value of your property, it is advisable to go for a loan from that bank. This ratio of loan sanctioned to the market value of your asset is called loan to value ratio (LTV).
  3. The higher the LTV ratio, the better will be the offer. The LTV ratio is different for different properties. Here is a rough estimate:
  • For self-occupied residential properties: 75%
  • For an empty or rented property: 60%
  • Commercial property: 65%
  • Industrial land for commercial purposes: 60%
  • Industrial property for industrial use (light machinery up to INR 50 million): up to 55%
  • Industrial property for industrial use (heavy machinery above INR 50 million): up to 50%
  1.  Compare the rates of interests from different banks. The interest rates range between 10% to 14%. Hence, there is a scope for choosing for a better loan. You must compare the loan rate of interests mentioned on the Finance Buddha's website. Usually, the processing charges are 1% of the loan amount, still some banks offer 0.25%. 
  2. There can be many repayment options. Look for the best option where the loan tenure offered is more. The late payment charges, prepayment charges or foreclosure charges should be less. High charges on these payment options can make it difficult for the borrower to repay the loan. Also, there are many modes of payment for Equated monthly installments (EMIs) through Electronic Clearance System (ECS) or Post Dated Cheques (PDC). Choose the one that suits your need.

Dos & Don’ts of LAP

  • You need to produce your application in a better way in front of the bank so that your loan gets easily approved.
  • Make sure that the end use of your property is evident. The residential properties get loan more easily with high LTV. 
  • The title deed of the property should be clear and the documents should be upfront, not fake. 
  • Look at the market reviews of the banks and then, choose the best one who gives the lowest rate of interest and highest Loan to value ratio.
  • There are some banks who give loans only for residential properties. So, if you have a commercial property, DO NOT APPLY in such banks.
  • Some banks give loan only to those businessmen whose business has been in place for the last 10 years. If your business has emerged in less than 10 years, DO NOT apply for such banks.

How to Apply Online for LAP at Finance Buddha?

The quickest and the tension free way to apply for the loan against property os through the best Finance website, Finance Buddha. At Finance Buddha, we present to you the best offers for the loan against property and give detailed information. You will be asked the fundamental points to evaluate your loan eligibility and present you the loan amortisation table.

With our assessment calculators, you can discover your eligibility, loan amount you can avail, just by mentioning about your property details, income, existing EMI sum, salary account bank, preferable loan tenure and residency.

Discover, compare and apply for the loan directly through the portal which is absolutely free and easy to use.

Through Finance Buddha, you also get rid of any kind of probability of getting your loan rejected and having a low CIBIL score. Rather than visiting the bank just to check the qualification and going out personally, you can directly examine the best choice online.

Leave your queries to Finance Buddha and you will get a swifter and easier way to apply for your home loan.