Many times we feel the need to browning some money. And usually, we do not have the time to take a full-fledged loan and rather feel the need of having something quick and ready. LAP or popularly known as a Loan Against Property is a similar kind of loan. People use their property which can be a house, owned land and commercial properties are given in as security to get a secured loan. A loan against property helps you to use the value of the property to pay off any debt, or expenses or invest it into something.
The loan amount depends on the property’s value and you have the full authority over those funds. It is said that the loan against property interest rate is comparatively lower than other unsecured loans. Most banks and NBFCs have low eligibility criteria and documentation processes for a LAP. let us dive into a few types of LAP:
- A person can get a LAP if they own residential property.
- If they live in a self-owned house.
- If they own land they are pretty eligible for a loan against property.
- A LAP applicant can get a loan if they own a commercial property.
- They can also get a loan i=against a property they own but have rented to others.
Loan against property – Eligibility criteria
These loans require less documentation but their verification process can be quite extensive. The banks can conduct checks on you and your property. These checks are very necessary to ensure there is no fraud. The eligibility depends on if you are a salaried individual, a self-employed person or an SME. The loan eligibility highly depends on income, credit score, other obligations and financial status. The banks will look into your income details, your job status and previous history before they disburse the funds into your account. The property you own and turn in as collateral will also be going through a verification. The bank will determine its current market value which will help in calculating the loan value. Here’s a list of documents that will help you sift things up:
- Identity proof
- KYC documents, i.e age proof and address proof
- Bank statement dating back to 6 months from the loan application date
- Salaried individuals will need to produce their six-month salary slips
- Financial audits for self-employed people
- A cheque for the processing fee
- Form 16
- Income tax returns for the past 3 years
- Documents related to the property you will provide as a collateral
To avail of this loan, you need to be a resident of India. To apply for the loan a salaried individual needs to be of 23 to 62 years of age. On the other hand, self-employed people need to be 25 to 70 years old. They will get a flexible tenure of the loan depending on their employment status.
Also Read: What are the small business loans?
The interest rate on loans against property
Usually, banks and NBFCs offer attractive interest rates on LAP. the interest rate depends on a lot of factors:
Your employment status:
The kind of work you do highly affects your interest. A sailed person will get a different interest rate than a self-employed person. Also, the number of years you have been in that particular profession is a factor.
Type of property:
The interest rate also depends highly on the type of property. If you have a flat your rate of interest rate might differ from a person who owns a bungalow.
The market value of the property:
The value of the property matters a lot. The higher the market value the lower will be the interest rate. The banks will determine the value of the property and decide the loan offer for you.
Documentation:
The banks and NBFCs require a lot of documents before they approve the loan. The id proofs, KYC, and property documents all affect the interest rate and loan amount.
Your credit history:
Like any other loan here too you need to produce your credit score. The higher the credit score the lower will be the interest rate. Therefore, you should always try your best to maintain a good credit score
Your income:
Your income or the turnover of your venture will also determine your interest rate. If you have a stable income the bank will agree to give you a reasonable interest rate on a loan against property.
Benefits of Loan Against Property
Check out the following benefits of a LAP:
Tax benefits
A loan against property will also benefit you with tax savings. According to the Income Tax Act of India, Section 31 mentions that an individual can avail of tax benefits on the interest amount of the LAP. In addition to that, in Section 24 an individual who borrowed LAP can avail of tax benefits up to 2 Lakhs on income tax.
Flexible loan amount
People who take a loan against the property can be flexible with their loan amount. Usually, banks will give 70% to 75% of the loan property value as the loan amount. The loan amount depends on the market value of the property which can also go up to Rs 5 crore. It is quite easy to get a higher amount of loan through this procedure.
Low-interest rates
This loan is a secured one therefore lenders are often at low risk. Therefore the interest rates are often lower compared to personal loans. Personal loans are often unsecured. LAP interest rates usually fall between 12% to 15%. Whereas in the case of personal loans the interest rate can hike up to 25%.
Long repayment tenures
Loans against property are equipped with longer repayment tenures. These repayment tenures range goes up to 15 to 18 years. This is helpful when you have a huge amount to repay. It serves as a great deal since the long repayment period is doubled by low-interest rates. This makes your monthly EMIs all the more affordable and helps you with your finances.
Helps covering expenses
These loans help you manage and pay the big expenses. Usually, people take such loans to cover finances like home renovations, wedding decorations, abroad studies, buying a home, etc. Since such loans have longer repayment tenures and also are very flexible hence they are easier to repay.
Easy approval
When you approach a bank or an NBFC for a loan against property the process is comparatively shorter than other loans. These loans are secured therefore the lenders do not take much time to process them. The banks will simply conduct verification and basic checks and within a few days, the funds will be disposed into your account.
No prepayment penalties
Another feature of this loan is that you will not be charged for a foreclosure. This means if you repay the loan before the end of its tenure the banks will not charge you.
The bottom line is that loans against property are very easy to process and super effective. The rate of interest is lower than personal loans. These loans are pocket friendly and do not burden you. The loan tenure can last up to 15 years and help with a comfortable EMI. You need to consider one thing and that is if you ever fail to repay the bank will take the full possession of your property. Therefore you must carefully plan and go forward with it.
