Loan Against Property

This article talks about loans against property, which are secured loans where borrowers have to pledge their property (residential or commercial) as collateral.

· 4 min read
Loan Against Property

Property is an asset that can be used by its owners at the time of an emergency. A loan can be acquired by using self-occupied residential property or commercial property. These borrowings are known as Loan Against Property. A loan against property is a secured loan availed against a commercial or residential property kept as collateral with the bank or other lenders. Generally, there is no restriction on the usage of the funds borrowed. Thus, loans can be used for a variety of purposes such as business expansion, weddings, children’s education, etc. Interest rates on these loans are usually lower than that of personal loans or business loans. Anyone with pre-owned property can avail of such loans.

Features

  • A Loan Against Property is provided against collateral i.e., an immovable property. Lenders appraise property before disbursing the loan. The loan amount depends on the prevailing market value. Housing finance companies normally provide up to 50-60% of the market value of the property as a loan.
  • The lender approves the loan only after making sure that the borrower has a clear and marketable title of the underlying property. Furthermore, co-owners also need to be a part of the loan and meet the loan criteria.
  • Borrowers must fulfill the required income criteria to repay the loan.
  • The tenure of the loan can vary from 12 months to 20 years.
  • The loan against property is repaid in Easy Monthly Installments (EMI). EMIs are spread over the life of the loan.
  • The lender evaluates the repaying capacity of the borrower before approving the loan, with the help of documents such as income statements, repayment history, etc.

Eligibility Criteria for Loan Against Property

Anyone who meets the eligibility criteria can apply for loans against property individually or jointly. All co-owners of the property must be the co-applicants for the loan. Applicant must adhere to all following eligibility criteria:

  • The age of the applicant should range between 21-65 years
  • Applicants can be salaried or self-employed
  • Applicant must be a resident of India

The loan process and eligibility criteria may vary from lender to lender. But the points mentioned, generally remain common for all lenders.

How to Apply for Loan Against Property

The general process to apply and avail loan against property is as follows:

  • Select a respected lender offering a loan against property that suits your needs.
  • Fill in the online application form on the website of the lender. Enter all your personal details as per the requirement of the form.
  • Enter the details of the loan you wish to take such as tenure, amount, and any other terms.
  • The lender shall calculate your eligibility based on the information supplied by you.
  • The lender will then begin the verification process of all your documents, property and will carry out a valuation of your property.
  • If the lender is satisfied, a loan sanction letter will be sent to you.
  • Finally, before loan disbursement, you will need to submit original documents of the property.

Documentation

The following documents need to be furnished after filing up the application form:

A salaried employee needs to furnish the following documents:

  • Identity proof such as Aadhaar Card, Passport, or any other government ID
  • Address proof such as Voter ID card, Passport, or any other address proof issued by the government
  • Latest salary slip
  • Last 3 months’ bank account statement
  • Income tax returns
  • Documents of property against which loan to be raised

A self-employed individual needs to furnish the following documents:

  • Identity proof such as Aadhaar Card, Passport, or any other government ID
  • Address proof such as Voter ID card, Passport, or any other address proof issued by the government
  • Last 6 months’ bank account statement
  • Documents of property against which loan to be raised

Prepayment Facility

Many lenders of loan against property provide the feature of prepayment. Prepayment is a feature that borrowers may opt for to avail part-prepay or foreclose a loan before the tenure of the loan ends. As per the RBI rules, there are no extra charges or only nominal charges leviable on the prepayment of the loan. The benefit of prepayment is as follows:

  • It reduces the outstanding principal, and liability of the borrower
  • It lowers the EMIs or the loan tenure
  • It helps the borrower to repay the loan more quickly to become debt-free

Opting for a prepayment option should be taken after scrutinizing all factors as it may not be a wise decision under all the circumstances.

Types of Loans Against Property

  • Regular Loan against property: This is the most preferred loan among borrowers and is availed for any kind of business or personal needs. Normally, the lowest interest rate charged on a loan against property is 8.70%. Most banks and NBFCs provide loans against residential properties and only selected banks offer loans against commercial property.
  • Loan against property Overdraft: This loan facility is availed by individuals who expect to have surplus income or fluctuating income during the year. This facility allows you to deposit a surplus amount for any period in your loan account to reduce your interest liability for that period.
  • Loan against property Top Up: Top up loan means an additional loan amount that you can avail of on your existing loan against property. The amount of top-up loan plus existing loan outstanding should be in accordance with the margin requirements. Top-up amount eligibility may vary from bank to bank based on your income and value of the property and needs a thorough comparison.