Written By- Jaya Pathak
Assume that you have a valuable asset, but you are facing a financial crunch. Instead of selling the property, don’t you think that it would be great if you could just leverage its value to meet your financial needs? The Loan Against Property help you to do that. Whether you need money for business expansion or medical emergency, Loan Against Property provides you a cost effective and secure solution.
Understanding Loan Against Property
A Loan Against Property is basically a ‘secured loan’ availed by individuals or businesses where borrower pledges the property as “collateral” against the loan amount. This facility is availed against the mortgage of a commercial or residential property. In simple words, LAP is a secured loan taken against an individual’s or business’s property.
This loan is offered by financial institutions such as banks or Non Banking Financial Companies (NBFC’s). This loan is generally taken for large expenses such as business expansion, investments, home renovation and so on.
It serves as a great option for individuals who require a huge sum of amount but requires to pledge their assets as collateral. It can also benefit those individuals who are looking for financial stability to consolidate their debts into one loan.
However, it is to be noted that if the borrower cannot repay the loan the lender can take possession of the property and auction it to recover the loan amount. Henceforth it is important to me only what is required and make sure that the whatever can repay the loan as per the terms and conditions.
Factors affecting interest rates
Interest rates plays a massive role when you take out a loan particularly a loan against property. The interest rate that you will receive will determine the overall cost and how much amount you need to pay back throughout the loan. Some of the factors which affect interest rates are listed below-
- Credit score: Lenders can use your credit score to assess your credit worthiness. By looking your credit score, they can also decide whether they can offer you a loan or not. If you have a low credit score, you are a high risk borrower and you might have difficulty repaying the loan. As a result a higher interest rates may be charged by the lender to offset the risk of default. A stricter approval criterion might be applied.
- Profile of the applicant: The profile of the applicant includes income, age and previous notes. All these details plays an important role in determining the interest rate. If you have a higher income, the chances are more likely that you will be able to afford the loan and make timely payments. You might get the loan at a lower interest rate. The age of the applicant is also important as lenders generally prefer older borrowers who have a good credit history. Through the long history, lenders can offer you lower interest rate if you have a good repayment record. Your good record will demonstrate your financial responsibility in the past.
- Property value, documentation and insurance: The value of your property plays a decisive role in determining the interest rate. Higher the value of your property, the more chances will be to receive the loan at a lower interest rates. The documentation demonstrate that you have the evidence of the ownership and value of the property being used as collateral. The insurance coverage is also important to ensure the safety of the lenders investment. The financial institution must be sure that the collateral property is protected in case of any eventuality.
- Loan amount and tenure: The loan amount you will receive also play a significant role in determining the interest rate. The higher will be the loan amount, the higher will be the monthly instalment. The borrower might be charged a higher interest rate to compensate the risk associated with the loan. The longer time duration is a higher risk to the lender.
Hence the borrower get the loan amount with a higher interest rates.
How to apply for Loan Against Property
- Eligibility criteria: In order to be eligible for the LAP, you must:
- Be 25 to 65 years old.
- Have a collateral property in India.
- Have a steady source of income from a valid source.
- Have all the legal property documents.
If you are meeting the eligibility criteria, you can apply for the loan. After assessing your credit worthiness and property’s market value, your application will be either rejected or approved.
- Documentation: The documents are required for applying For the loan as it ensures that the loan is taken out as per regulations and the lender as well as borrower are protected. Some of the required documents include identity proof, address proof, property documents, the proof of income and many more.
- Application process: The first step in applying for the loan against property is determining eligibility. The eligibility criteria have already been mentioned above. You will be required to have a steady source of income along with a good credit score and valid property details. You might they require to provide some additional documents such as bank statements financial records. Once you are eligible for the loan. You may choose the lender retired you can compare numerous offers and choose the one which is appropriate for your needs.
You can complete the application form provided by the lender which contains all the necessary information about the loan request. After that the lender will decide whether or not to approve your loan based on your eligibility, documentations and other information. If your loan is approved then you will receive a loan agreement outlining the terms and conditions of the loan.
Features of loan against property
- In Loan Against Property, lenders secure the property collateral. The risk for the lenders is much lower. They can offer lower interest rates to the borrowers which will make it an attractive option.
- Most lenders offer flexible repayment options which allows borrowers to choose the most appropriate payment option as per their needs. It can include shorter as well as longer repayment periods, fixed or variable interest rates and many more.
- It also comes along with tax benefits period the interest payments on a loan against property can be deducted from your taxable income. It will result in reducing your tax liability and provide you some additional savings.
- The loan amount are typically higher in loan against a property in comparison to other types of loans. As we have discussed earlier, loan against property are generally secured loans and they tend to have higher loan amounts than the unsecured loans. It can be beneficial for those individuals who are looking to borrow a huge sum of money.
- You can use this money for multiple purposes such as debt consolidation, home renovation, business expansion and many more. It makes this money a great option for flexible end use. You can use this money to fulfill a variety of needs.
Conclusion
Loan against property is a convenient financing option which offers high loan amounts at relatively low interest rates. By following the steps, applicants can secure the loan amount and utilize it for their personal or business needs however in order to avoid any financial difficulties, borrowers must assess their repayment capacity and ensure that they will timely give monthly installments.
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