Knowledge Center

Leveraging Your Assets: Understanding Loans Against Property 

Loan Against Property (LAP) stands out as a valuable option for individuals seeking substantial funds by leveraging their existing property. This type of loan, secured through various banking and non-banking financial corporations, allows you to borrow money using the value of your residential or commercial property as collateral. Also known as a Mortgage Loan or Collateral Loan against property, LAP provides a flexible and often cost-effective way to meet significant financial needs.
In this article, we'll explore the essentials of LAP, the types of properties you can use as collateral, eligibility criteria, interest rates, advantages, and the application process.

Let us introduce you to Loan Against Property.

What is a Loan Against Property?

LAP, or Loan Against Property, is a type of secured personal loan that you can obtain through various banking and non-banking financial corporations. This type of loan allows you to borrow funds using the value of your existing property (residential and commercial) as security. LAP is also called a Mortgage Loan or Collateral Loan against property.

Which properties can you take a loan against?

There 2 types of properties you can get a loan against: Residential Property and Commercial Property.

Residential property is the most common type of property accepted by lenders as collateral, which means if you need a loan and currently own a home, this is the best way to increase your chances.

However, you can also secure a loan from your commercial/ business property. Commercial property may also qualify you for a lower interest rate.

One thing to look out for both these properties is that there are no ownership disputes. Only when one has a clear ownership title over a property, it can be used as a security against LAP.

Know your eligibility for a Loan Against Property

Any salaried or self-employed individuals can benefit from LAP by leveraging their residential or commercial properties.

Apart from being a citizen of India, here is the primary eligibility criterion every bank follows: 

● Age: At least 21 years and not older than 65-70.

●Job: Salaried or self-employed individual

●Minimum Income: Rs.3 lakh per year.

●Experience: Minimum experience of 1-5 years

●Loan Amount: Upto Rs.25 crore.

● Repayment Time: 15-20 years (Maximum)

What are the interest rates on a loan against property?

Every loan attracts interest, meaning the loan against your property should be repaid with an interest amount. But how much is the interest, and how is it calculated? 

Various factors influence decisions related to interest rates; let's discuss a few below:

1. Credit Score: You cannot completely ignore the benefits of a good credit score. Your credit score determines your chances of repaying your loan. A good credit score means better chances of loan disbursement and lower interest rates.

2. Property location and value: Lenders consider the current market value of your property and its location to determine potential future prices.

3. The loan-to-value (LTV) ratio: The LTV ratio indicates the portion of the value of your property that a lender is willing to loan you. This ratio helps them determine the maximum loan amount they can offer against your property. This ratio is calculated by dividing the loan amount by the appraised market value of your property. Lenders typically issue loans between 50 and 70 % of the value of your property. For example, if your property is valued at Rs. 1 crore and the lender has an LTV ratio of 70%, the maximum loan you qualify for would be Rs. 70 lakh (70% of Rs. 1 crore).

4. Stability and Work History: Long-term employment shows you can be trusted to repay the loans and might even be eligible for lower interest rates.

5. Loan Tenure: The interest rate depends on the LAP duration. Longer durations typically have higher rates than shorter ones.

Is a Loan Against Property the right choice for you?

Now that you have all the info, how do you decide if a Loan Against Property (LAP) is the right choice for you?

 Let's look at a few advantages and disadvantages of  Loan Against Property.

Advantages:

●  When compared to unsecured personal loans like personal loans, student loans and credit cards, LAP typically allows you to borrow more significant sums of money.

● Loan Against Property carries less risk for the lender; therefore, interest rates are frequently lower.

● LAP provides you the option of longer loan terms and more flexibility with multiple repayment schedules and options.

• LAP does not restrict how you use the loan amounts, which means you can use the loan for any purpose of your choice from paying debts to going on a vacation. 

Disadvantages

● Longer waiting periods: The waiting period to obtain a loan after applying for one is rather lengthy. Banks have to investigate the applicant's past to confirm their identity before granting a loan.

● Lengthy Inspections: Intense bank inspections and checks, such as repayment capacity and credit score, are only a few of the factors the bank will consider. This can be the reason your loan application is denied or delayed.

How do you apply for a Loan Against Property?

You can apply for a Loan Against Property from a financial lender of your choice and then follow the below steps:

Step 1: Visit the website and apply for a loan here.

Step 2: Collect the required documents. Below is a given list of documents required for salaried and self-employed individuals.

For salaried Individuals :

1. Proof of residence (any one of the following):

Ration Card
Telephone Bill
Electricity Bill
Voter's ID Card

1. Proof of identity (any one of the following): 

Voter's ID Card
Employer's Card

1. Latest Bank Statement/Passbook where your salary is credited for the previous 6 months

2. Salary slip for the previous 6 months showing all deductions

3. Form 16 for the previous 2 years

4. Copies of all the property documents of the concerned property to be pledged for the loan

For self-employed individuals:

1. Certified Financial Statement for the previous 3 years

2. Proof of residence (any one of the following):

Ration Card
Telephone Bill
Electricity Bill
Voter's ID Card

1. Proof of identity (any one of the following): 

Voter's ID Card
Employer's Card

1. Latest Bank Statement/Passbook where your salary is credited for the previous 6 months

1. Copies of all the property documents of the concerned property to be pledged for the loan

Step 3: Fill out the form and submit your documents. Once your documents are submitted, the lenders will thoroughly inspect and carefully verify your details. 

Step 4: As your details are checked, the officials will adequately examine your property. 

Step 5: Once your application meets all the requirements and your property is validated, the bank will disburse the loan and credit the amount to your bank account. 

In Conclusion:

A loan against property is a great way to leverage your assets and fund your financial requirements. With expert-led assessment and a hassle-free verification process, availing of a Loan Against Property with Aadhar Housing Finance is a reliable process.