Among a wide array of loan products available to consumers today, a loan against property (LAP) is a secured loan facility, which can be availed by individuals and businesses by pledging a commercial or residential property as loan collateral. Borrowers are thus guaranteed substantial funding and flexible repayment solutions with the mortgage, depending on their lender’s policy and eligibility norms. The very nature of financing makes it easier to fulfil any sudden or planned monetary requirement with quick turnaround time.  

What Is Loan Against Property?

A property loan is a mortgage loan taken against the borrower’s self-owned property. Banks and lending institutions extend this feature to individuals who need a large amount of cash and favour real estate collateral. They may use the money for numerous personal and professional purposes like funding higher education, family weddings, medical emergencies, business-related activities or consolidation of ongoing debts. 

However, if the borrower is unable to repay the debt, lenders can repossess the collateral to recover their outstanding dues. 

Features and Benefits of Loan Against Property

Loans against property are popular among borrowers due to these useful features:

• Low interest rates – Since an expensive real estate asset is mortgaged, it reduces the lending risk resulting in lower interest rates. 
• High loan amounts – The quantum of loan is much higher; subject to property assessment and valuation based on its age, condition, amenities, potential for appreciation, etc.
• Flexible use of funds – Borrowers can utilise the money for varied purposes such as home renovation, debt consolidation, business expansion and more. 
• Longer repayment tenor – LAP is offered with longer tenors up to 30 years making loan repayments easier. 
• Tax benefits – Salaried borrowers can claim loan against property tax benefits under Section 24 (b) on interest paid if the loan is used to build a new house and under Section 37 (1) if the loan addresses business or professional needs.

Factors to Consider Before Taking Loan Against Property

Borrowers must keep certain aspects in mind to make the most of their loan and limit the liability to a minimum:

Choose the Right Loan Amount 

Estimate the exact loan amount you will need to manage your big-ticket expenditure. A larger principal may come with hefty interest rates impacting cash flow. Hence, borrow what you can repay without straining your resources or regular expenses. 

Know the Value of Your Collateral 

Get your property assessed and valued through experts so that you are aware of its market potential. This will benefit you when discussing credit requirements with lenders for a fair and favourable loan deal.

Aim for Attractive Interest Rates

Compare the loan against property interest rates offered by several lending institutions to grab the most competitive rate. Even the slightest difference in these rates can result in considerable savings over time. 

Check LAP Qualification Criteria

Examine the eligibility parameters to see if you qualify for a property loan. Lenders normally determine loan eligibility based on the following:

• Age of applicant
• Income and job profile
• Credit score
• Existing debts
• Property value

Lenders will first appraise your credit score when screening loan applications. Since they prefer borrowers with established credit records, a poor CIBIL score places you as a high-risk borrower. In that case, they may charge heavier interest with stricter terms to offset the risk while individuals with a good repayment record and credit scores above 750 can enjoy lower interest rates due to a responsible credit history.   

Keep Documents at Hand 

It is necessary to submit the complete list of paperwork requested by lenders during loan processing and verification for swifter approvals. Here is a list of the basic LAP documentation:

• Identity proof – Aadhar card, PAN card, driving license or other government-issued ID
• Address proof – passport, utility bills, etc.
• Income proof – salary slips, bank statements, income tax returns
• Property documents – sale deed, property tax receipts, no objection certificate

Consider Related Costs

Borrowers must factor in other associated costs like processing fees, prepayment and foreclosure charges, etc. when computing the overall loan cost. Try to find a loan that levies nil to nominal penalties without adding to your financial burden. 

Choose the Right Tenor

Exercise caution when selecting the repayment tenor to manage repayments effectively within your allocated budget. A longer tenor accords smaller EMIs but the interest accrues over time inflating the credit price. Whereas, a shorter tenor implies paying higher instalments each month, which can restrict the interest component and allow you to pay off the loan faster. 

Types of Loan Against Property

Credit borrowers in India may choose from any of the three types of LAP:

• Loan against residential or commercial property – A self-owned house, office, shop, etc. can be pledged as collateral. 
• Loan for purchasing commercial premises – Business enterprises can use the loan to buy large office spaces, warehouses and so on. 
• Lease rental discounting – This is a term loan offered against an economically robust property on lease.

Depending on their specific requirement and financial position, borrowers can choose the option that works best. They may pledge any existing property they own which could be:

• A residential self-occupied property
• Commercial space
• Industrial unit
• Self-owned house that is rented out
• Agricultural land or a vacant plot

How to Apply for a Loan Against Property

To begin with, it is important to have a basic comprehension of the loan and its affordability. Your loan application process may typically include the following:

• Research property loan schemes of other lenders to zero in on the ideal option. A loan against property EMI calculator can compute the payable instalments and even customise the loan to suit your needs. 
• Then evaluate whether you meet the lender’s eligibility standards. You may access a loan against property eligibility calculator for instant clarity. 
• Lenders have varying documentation requirements. Verify and arrange them for timely submission to support your LAP application. 
• With everything in order, now check your preferred lender’s official website to apply for a property loan online or you could also physically visit their branch office in your city.
• Once you submit the form, lenders will review your application per due procedure to see whether they can accept your request.

Summing Up  

A loan against property optimises asset utilisation. Apart from its regular functionality, you can leverage it for high-value funds and even while you pay off the loan, you may continue using it for residency or work. Remember, any real estate collateral must have valid documentation from relevant authorities that proves clear property title and ownership. Additionally, it must be free from any conflicts or legal disputes.