Arranging and accumulating funds for achieving life’s various milestones can be a long and tiring process. There’s no harm in taking a long route and depending on savings to fulfil aspirations. However, when there’s an urgent requirement for money, savings do not always help the cause. To meet such unforeseen circumstances, availing of a loan becomes a viable option.
The financial market extends various kinds of loans based on purpose, security provided. and other factors. One such loan facility available to individuals is the loan against property (LAP). Before we go any further, it is important that you ask yourself, ‘What is loan against property?’ Here’s everything you need to know about loans against property.
What is loan against property?
A loan against property (LAP) is a type of secured loan sanctioned against the mortgage of an asset. This asset can be in the form of any residential, commercial, or industrial property. It is an opportunity to leverage one’s assets to attain maximum benefits. The borrower retains ownership of the asset extended as collateral. If the borrower defaults in repayment, the property gets transferred to the bank.
Loan against property: Key benefits
A loan against property (LAP) is gradually becoming the most preferred loan option. In 2018, a study depicted that the loan against the property’s market in India would increase by 22% annually over the next four years. This rapidly enhancing popularity of LAP is due to the several advantages accompanying it. The benefits may vary from one lender to another, but some of the common advantages include:
- Have a large amount sanctioned: Banks or NBFCs lend about 50-70% of the property’s market value in the form of a loan. This percentage is referred to as the loan to value or LTV. Thus, banks can disburse a large amount as a loan.
- The flexibility of usage: The loan sanctioned can be utilised to fulfil both personal and business requirements. Thus, there is a presence of significant convenience and flexibility. However, it cannot be availed of for investment in speculative spheres.
- Low-interest rate: A loan against property, being a secured loan, comes at a low-interest rate. The crucial step is to find the banks that issue low interest and to achieve this relying on trusted sources such as Altrua Financial can aid you through the predicament of choosing the best mortgage plans with lowest interest rates. LAP interest rates in India start from around 8.20% per annum. It is relatively low when compared to unsecured loans.
- Long tenor: The loan against property’s tenor is flexible and in line with the liking of the customers. Tenors can range up to 20 years, thereby offering enough breathing space to settle the loan. The loan can be conveniently repaid over a long period in the form of affordable EMIs.
Loan against property: Eligibility criteria
Loan against property eligibility varies from one lender to the other. Some general eligibility requirements to be fulfilled by applicants include:
- The age should generally fall between 18 and 65 years
- The applicant can be a salaried employee, a self-employed professional, or a non-professional
- Net annual income should be at least 1.5 lakh INR
- The credit score should preferably be at least 750
The bank considers the market value of the asset too. A maximum of 50-70% of the market value of the property gets approved as a loan.
Loan against property: EMI calculator
Before deciding to put an asset as security for acquiring a loan, make a rough estimate of the interest and EMIs. Loan against property EMI Calculator helps you determine the EMI amount accurately. Availing the services of loan against property interest rate calculator and the EMI calculator will help you in planning your repayment terms. It will pave the way for proper mobilisation of finances. Entering the loan amount, interest rate and tenor help assess the EMI. It keeps the repayment procedure free from any hassles.
Loan against property: Documents required
After meeting the eligibility criteria, you can apply for the loan. The bank will seek some vital documents, which will have to be furnished. The paperwork varies for salaried and self-employed individuals.
Salaried employees need to submit the following documents:
- Photograph affixed on the application form
- Valid identity proof in the form of an Aadhaar Card, Voter ID etc.
- Address proof in the form of utility bills, passport etc.
- Salary slips of the last three months
- Form 16
- Bank statements of the past half a year
- Evidence of ownership of the asset
Documents required for self-employed individuals or businessmen:
- Photograph attached on the application form
- Valid identity proof in the form of an Aadhaar Card, Voter ID etc.
- Address proof in the form of utility bills, passport etc.
- Proof of business, educational qualification certificates (for professionals)
- IT returns, Balance Sheets and P&L statements of the past three years (self-employed professional)
- Business profile, IT returns, Balance Sheets and P&L statements of the past three years (businessmen)
- Bank statements of the past half a year
- Evidence of ownership of the property
Once the lender upholds the validity of the documents, a representative may undertake a physical visit to assess the value of the property. After the completion of all the formalities, the loan gets disbursed in about 2-3 instalments.
To summarize the answer to what is Loan Against Property, it is a type of mortgage loan that requires the borrower to extend an asset as security. The borrower retains the rights of ownership through the entire tenor of the loan. In case of any default, the bank or financial institution assumes the asset’s ownership and covers for the loss.
Bajaj Housing Finance Limited (BHFL) is a noteworthy name extending the facility of loans. Fulfil the eligibility criteria and get your loan against property dispersed within four days of submitting all necessary documents. Enjoy flexibility with the tenor, which ranges from 2 to 20 years.