The loan against property assists the borrower in meeting his financial needs by allowing him to keep his business or residential property as collateral. The LAP has its distinct features like lower interest rate, lower processing fee etc. which make it popular among its borrowers.
This article will assist you to understand the loan against property with its pros and cons, procedure, eligibility criteria, essential documents etc.
What is loan against property (LAP)?
The loan borrowed from any lender in which the property of borrower is kept as collateral is known as the loan against property.
It is type of secured loan in which the person can meet his financial needs by keeping his residential or commercial property as mortage at the lender.
The LAP can help the borrower at the time of any financial emergency like medical emergency, educational expenses, wedding etc.
As it is a secured loan the interest rates are also less in comparison with other unsecured loans as well as it also has advantage of lower processing charges.
For the LAP the applicant has to provide comparatively less number of documents. It generally requires applicants ID and age proof, property documents and income proof.
In case of LAP the borrower also gets large repay tenure up to 20 years and the applicant has flexibility to choose the tenure period suitable for him.
Eligibility for loan against property :
The eligibility of the applicant to the loan against property depends on following factors. The eligibility circumstances for each factor are different for the different lenders. The eligibility criteria also reflects the ability of applicant to repay the loan amount.
- Geometric location: The geometric location of your residence for your property also decides your ability for LAP.
2) Age of applicant: From the age of applicant the lenders knows that the applicant has a sufficient service years in which he/she can repay the loan amount. Therefore the applicant with minimum age has higher possibilities for getting eligible.
3) Income: The sure income source of the applicant assures the lender about the capability of borrower to repay the loan. The lender also considers the total monthly obligations of applicant for checking eligibility.
4) Credit score: Some lenders also check the credit history of the applicant by checking his credit score. Generally credit score between 700 to 900 is considered as good for getting eligible for LAP.
5) Value of property: This factor decides the maximum amount of loan you can avail on your mortgage property. In this policy the loan amount is the specified percent of total worth of your property.
Advantages of loan against property :
By taking loan against property the applicant can avail following benefits.
1) lower rate of interest: The LAP is secured type of loan in which the borrower has to provide collateral. Hence the rate of interest is comparatively lower than unsecured loans and if the applicant has the better credit score then the lender also lowers the rate of interest for the applicant.
2) Require less documents: For taking the loan against property the applicant has to provide less number of documents to the lender. It requires your identity and residential proof, income proof and the documents of the property against which the lender provides loan.
3) Property remains safe: Your property temporary remains under the name of lender till the repayment period and after that it is reverted back to the customer.
4) Flexibility while choosing repay tenure: Mostly the lender offers different tenure periods to the applicant. Hence the borrower can choose the tenure period as per his requirement. The maximum tenure period lowers the the cost of EMI and increases the amount of total interest. the minimum tenure period reduces the interest cost but the EMI cost is more.
5) LAP processing charge: For the LAP policy most of the lenders charge less amount of processing fees. The processing charges will be deducted from loan amount and remaining amount is disbursed to the borrower.
Disadvantages of loan against property :
The loan against property also has some disadvantages because of which it becomes risky. The following are some of the major disadvantages of loan against property.
1) The loan amount depends on property value: The value of property decides the maximum amount of loan you can borrow and the lender provide maximum 60 to 70% of property value as a loan hence sometime the maximum loan amount never meet the requirement of borrower.
2) Uncertain loan amount: Depending on the market the value of your property will Increases or decreases continuously. Hence if the market value of your property is lowered then you can’t avail the loan amount as per your requirement.
3) Risk to the property: If the borrower never pay the loan amount then the lender can sell the property to cover the loan amount. Hence in this policy the borrower has risk that he can lose his valuable assets. Hence the applicant should think about the risks and disadvantages before taking the loan against property.
Points to be considered while choosing the lender :
There are lot of lenders which offers loan against property policy with the different proposals. The applicant has to choose the right proposal which will be affordable to him. Here are some points which will help you to compare different policies with each other.
1) Loan amount: The different lenders has different criteria to sanction loan amount taken against property. Most of the lenders provide 40 to 60% of your property value as loan.
2) Rate of interest: The rate of interest also varies with the lenders hence it is necessary to find lender which offers minimum interest rate.
Some lenders also provides floating rate of interest which fluctuates as per the market rate hence sometime it is beneficial to the borrower.
3) Processing fees and penalties: It is also necessary to check the amount utilised in processing fees and documentation and it also varies as per the lenders. In case of late payment or prepayment some lenders charges penalties. Hence the applicant has to enquire about extra charges incurred by lenders before applying to the loan.
4) Repay tenure: The applicant can select any tenure period offered by the lender. The applicant has to choose the proper term so that he has to pay less interest and with affordable EMI.
How much funding can I get from LAP ?
The maximum amount of loan depends on the loan to value ratio (LTV). The value for LTV is different for the different lenders.
The maximum limit of loan is equals to the LTV percent of value of property. Mostly the lenders consider LTV ratio upto 60%.
e.g. If value of property is 10,00,000 and the ltv ratio is equals to 50% then the lender can provide maximum loan upto 5,00,000.
Documents required for loan against property :
Documents required to borrow loan against property from the lender are listed below. There is a slight difference between the documents required for salaried and self employed person. The documents submitted are verified by the lenders to find application eligibility and to find amount of loan.
a) Age and identity proof (Any one of following)
i] PAN card
iii] Aadhar card
iv] Driving licence
b) Address proof (Any one of following)
ii] Bills (telephone, electricity etc)
iii] Driving licence
iv] Voter ID card
c) For salaried person:
i] Past three month salary slips
ii] Past 2 years form 16
iii] Latest bank statement of last 6 months
d) For self-employed person:
i] Business address proof
ii] Last 6 month bank statement
iii] Past 3 year income tax returns (with profit and loss, account and balance sheet)
e) Documents of the property
Procedure of borrowing loan against property :
Here is the general procedure followed by the lenders for providing loan against property. The applicant can fill the application online on official portal of lender or can apply offline by visiting nearest branch of the lender. In both methods of application the process remains same as follows.
1) Fill the application for LAP:
The process starts with the filling of application form of LAP. In this application the applicant should duly fill the correct information about his employment, property and personal details as the information provided by the applicant gets verified by the lender.
2) Document submission: The submitted application form gets verified by lenders representative. After that the applicant has to submit required documents at the branch of lender which is used to verify your eligibility and to decide loan amount.
The lender generally asks the documents for identity and age proof, residence proof, income proof and the property documents.
3) Verification of application and documents:
At this stage the lender verify the application form and documents provided by the applicant and check the eligibility of the applicant. Some of the lenders sends their representative at applicants home for verification.
4) Offer letter: After completion of the verification process the lender generate an offer letter including sanctioned loan amount and other details. If the applicant accepts the offer letter then the lender completes further procedure.
5) Disbursal of loan: At the end of procedure the lender disburse the loan amount to the applicants account.
Types of property for collateral in LAP :
All type of property are not considered as collateral in LAP. Every lender has certain criteria for the property to be considered as collateral.
Property which is considered as mortage,
i) Should be self owned residential property (self occupied or rented)
ii) Should be self owned commercial property (self occupied or rented)
Following type of property’s are not considered for loan against property:
i) The property funded by the cooperative society
ii) The property is under construction
iii) cinema halls
iv) Warehouse for cold storage etc.
Where can I utilize LAP amount ?
The lender provided flexibility to the borrower for using the amount of loan. In case of policies like home loan or car loan the borrower has to utilize borrowed amount for the specified reason. While in LAP policy the borrower can utilize the loan amount for any legal purpose. People generally use it for the weddings, higher education, to pay outstanding, medical emergencies etc.
Loan against property providers in India :
There are much banks and financial organisations present into the market which offers you the different proposal for LAP. Here we have mentioned some of the LAP providers in India.
i) HDFC Bank
ii) Aditya Birla Finance Ltd.
iv) ICICI Bank
vi) Edelweiss Financial Services Ltd.
vii) Fullerton India Credit Company Ltd.
viii) Orix Leasing & Financial Services India ix) Ltd.
x) Kotak Mahindra Bank
xi) Capital First
xii) Reliance Home Finance Ltd.
xiv) RBL Bank Ltd.
Last words :
The eligible applicant can get the LAP on his residential or commercial property. But before taking LAP the applicant should aware about the risks of LAP. And it is also necessary to check the different proposals of different lenders before taking LAP. It is essential to check that the selected plan for LAP will meet your expences with affordable price.