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Seeking a Loan against Property Here's How You Can Secure One

Seeking a Loan against Property Here's How You Can Secure One
There can be no debate about the fact that a property is one of the most valued assets owned by any individual. And, it can come in immensely handy when you need a large amount of money but do not want to dip into your savings. In other words, a loan against property (LAP) is a secured loan that can be availed to fund expenses related to marriage, education of children, emergency medical needs, business expansion etc. Moreover, since it is taken against collateral (your property), it is easier to get one and get approved for it quickly. Usually, lenders fund up to 70% to 80% of the market value of a residential property. Now, typically, a LAP is spread over 10-15 years, depending on various factors. These days, apart from residential and commercial properties, lenders are also offering loans against plots of land.

So, if you are planning to apply for finance against property, here are the things you should keep in mind:
 

Loan tenure


Loan tenure is essentially the period over which you can repay the loan. So, assess your financial condition and repayment capacity, and then choose a financial institution that offers a loan period that is suitable for your requirements. The majority of lenders offer a loan against property for the maximum tenure of 15 years. However, bear in mind that the interest amount will depend on the tenure. The longer the tenure, the lower will be the interest charged, and vice versa. To understand the impact of loan tenure on a loan against property interest rate, let's take an example. 
 
Assume you and your friend each took a mortgage loan on commercial property for Rs 20 lakh at a 10% interest rate. However, you chose a 15 years payback period, whilst your friend chose a 10 years repayment period. The difference between both loans will be as follows:
 
Parameters  Loan Against Property Availed by You Loan Against Property Availed by your Friend
Loan Amount Rs 20,00,000 Rs 20,00,000
Interest Rate 10% 10%
Repayment Tenure 180 months 120 months
EMI Rs 21,492 Rs 26,430
Total Interest Paid at the End of the Loan Term Rs 18,68,578 Rs 11,71,618
Interest Percentage in the Repayment Amount 48% 37%
 
The above table clearly shows that, while your EMI is Rs 4,938 less than your friend's, you will still end up spending Rs 6,96,960 more as the interest component at the end of your loan against the property period than your friend. It is recommended that you utilise the loan against property EMI calculator to save money on interest and choose the best term.

                Also Read: Resolve Financial Emergencies with a Loan Against Property
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Type of property


The type of property makes a huge difference when it comes to LAP. You should ask yourself the following questions:
 

  1. What is the nature of the property? Commercial or residential?

    Bear in mind that the commercial property fetches a better loan value than the residential property. The reason is that most commercial office spaces are located in the heart of the market, bearing higher value. If you own a factory or a manufacturing unit, it is believed that the size of the property will be bigger than your residential home. However, you may also find a lender that offers better loan value against the residential property. To know more about this factor, refer to your lender's loan against property eligibility criteria.
 

  1. What is the location of the property?

     If your property, whether commercial or residential, is located in a posh area and has all the basic and luxurious amenities within a 2-5 km radius, you can get a better bargain on your loan against the property. The basic amenities include access to schools, hospitals, and grocery and pharmacy stores, among other things. 
 

  1. Is the property well-maintained?

    A well-maintained property means lower credit risk. This is because such properties have better resale value, and can fetch better rent serving as a passive source of income, and so on. If a borrower fails on a loan secured by a well-maintained property, the lender will have no difficulty auctioning the property and recovering their obligations promptly.
 

  1. Are the property title papers clear?

    Before applying for this form of financing, run an eye over essential documents required for a loan against property. Make sure there is no pending litigation or ambiguity in the title of the property. If there are multiple owners in the mortgaged property, try to get the No Objection Certificate (NOC) papers signed by each owner.
 

Consider disbursal time

 
Disbursal time is typically affected when all the legal paperwork has been completed and appraised. So, consider a lender who provides hassle-free loans and disburses the amount within a reasonable time. However, do not fall prey to marketing gimmicks and end up choosing a lender simply because they disburse the loan amount super fast. Go online to check reviews and do some research on the history of the lender, to gauge their credibility.

Also Read: Your Guide to Tax Benefits on Loans against Property
 

Interest amount


To bag a competitive rate, you can employ the following tactics:
 
  1. Compare interest rates through online marketplaces that showcase interest rates of leading financial institutions. Remember, the interest rate may be fixed or floating in nature.
 
  1. Cleaning up your credit history and keeping your income proofs and income tax returns in place is essential. This will help you to negotiate a better rate.  
 
  1. Check if you belong to the category of special applicants. For instance, some borrowers such as women applicants or those seeking business loans against property for small enterprises are offered a subsidised rate under certain government schemes.
 
Although interest is a crucial factor to be considered while investing, it is not certainly the only important factor. The interest rate will also be impacted by the duration of the loan. Do consider other favourable policies offered by the lender while selecting a lender. Stay wary of lenders who charge exorbitant hidden fees.
 

Insurance

 
Make sure that your property is insured beforehand as it may be one of the criteria for getting approved for a loan against property.

Also Read: Key Questions About Loans Against Property Answered
 

Check for flexi loans


Opt for a lender who offers ample room for flexibility. For instance, you can request a change in interest rate, prepayment of the loan or waiver for certain fees, this way. Choose a financial institution that is comfortable with a certain degree of change and is not rigid in nature.
 
So, now you know about the things to consider before you apply for a loan against property. Always choose a loan amount that you can easily repay, and avoid a very long tenure since the total interest burden tends to become higher then. Compare multiple lenders and their offerings carefully and read their terms and conditions before signing the dotted line.
 
Disclaimer: This post was first published on 5 March 2021 and has been updated for the latest information, freshness, and accuracy.

 


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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