A loan against property (LAP) offers a way to secure funds by leveraging the value of one’s commercial or residential property. This is a secured loan where the borrower pledges their property as collateral. This collateral acts as a safeguard for the bank to recover the money in case of default by the borrower. Due to the fact that the loan is secured, an LAP can potentially offer borrowers more competitive rates than other unsecured loan options.
Before applying for a loan against property, borrowers must be aware of certain important aspects of this financing option. Continue reading to learn about them.
- Multipurpose Loan
A loan against property is a versatile loan. You can use this loan for big-ticket expenses, such as funding education, expanding businesses, medical emergencies, weddings, or debt consolidation. The flexibility of this loan makes it an attractive option for individuals looking for unrestricted usage of the loan amount.
- Property Types and Loan Amount
Properties eligible for a loan against property typically include residential, and commercial properties, such as an office or a shop. The loan amount you can secure through a loan against property is closely linked to the value of the property you pledge as collateral.
However, it also depends on other factors, such as your monthly income, financial obligations, retirement age, credit history, and credit score.
- Property Valuation and Documentation
Lenders evaluate the pledged property’s market value before approving the loan amount. Factors like the property’s location, condition, and market trends significantly determine its value. As part of the application process, you must submit property documents, proof of ownership, income documents, identity proofs, and other relevant documents.
- Eligibility Criteria
Individuals, proprietorship concerns, partnership firms, private limited companies, and closely held public limited companies (not listed on any stock exchange) can apply for a loan against property.
For salaried individuals:
- The minimum age is 21 years.
- The maximum age at loan maturity should be lower than retirement age.
- Individuals employed in PSUs, government undertakings, MNCs, listed public limited companies, or well-known private limited companies can apply.
For self-employed individuals:
- Doctors, CAs, CS, CFAs, engineers, and architects are eligible for the loan.
- Any individual who files an ITR can also apply.
- The minimum age is 21 years.
- The maximum age should be below 70 years at loan maturity.
- Repayment Tenure
One major benefit of applying for a loan against property is the flexible repayment tenure. The term for such loans can extend up to 20 years, providing ample time for repayment. However, longer tenures may result in higher overall interest payments.
- Processing and Other Charges
Like any other loan, a loan against property comes with associated processing fees, stamp duty, and pre-closure charges. Thus, it is advisable to carefully read the terms and conditions, understand all the charges involved, and factor them into your decision-making process.
- Ownership of the Property
If more than one individual owns the property to be pledged, all legal owners must jointly apply for a loan against the property. While the property remains as collateral, borrowers can continue using it for personal or business needs during the loan tenure. This ability to access financing while retaining the asset’s utility is a unique feature of a loan against property.
The Bottom Line
A loan against property is a powerful financial tool that provides substantial funds to achieve your goals without liquidating your property. Before applying for a loan against property, assessing your repayment capacity, and having a clear repayment plan is essential.
While it offers numerous benefits, remember that defaulting on loan repayments can lead to the loss of your property. As with any financial decision, conduct thorough research, compare offers from different lenders, and select the one that best suits your requirements.
