Loan Against Property

A loan against property or LAP is a secured loan provided to the borrower against their property as collateral. As the loan is secured, the interest rates are relatively low, and the loan amount is high. 

Here we will discuss loans against property in detail, their features and benefits, and the application process.

How Does a Loan Against Property Work?

LAPs work in the same manner as pawn shops, where you can put your possessions up for collateral and borrow money in return. Once you pay off the loan, your possession is returned to you.

Similarly, you can use your property as collateral to borrow funds, and it is referred to as a Loan Against Property.

How much money you’ll get and what the interest rate will be depend on the property that is being put up as collateral, along with your creditworthiness. Similar to a personal loan, there is no restriction on the end use.

However, if the borrower is unable to repay the loan, the lender may take possession of the property and auction it to recover the amount owed. Therefore, borrowers should borrow only what they need and ensure that they can repay the loan as per the terms and conditions.

What are the Eligibility Criteria for a Loan Against Property?

The eligibility conditions imposed vary from one lender to another. However, your age, income, value of the property that is being put up as collateral, and your credit scores will matter the most.

As an example, we are mentioning the eligibility criteria for getting a loan against property through Moneyview -

• The applicant must be between 21 and 70 years of age

• The borrower must be either salaried or self-employed.

• Additionally, you must receive the minimum salary or income as specified by your lender

• Applicants must also have an acceptable credit score, preferably 750 and above.

Loan Against Property - Documents Required

While documents needed to avail a loan against property will vary depending on the lender, here are some of the most important ones -

Documents Related to the Property in Question

• The title deed of the property

• Property tax paid receipts

• Documents such as Occupation Certificate, etc. for the property

• Insurance documents for the property

• Any other documents as decided by the lender in relation to the property

Other documents that may be required are

• Salary slips /Proof of Income

• Bank account statements

• Address proof

• Identity Proof of the individual

• Form 16/Income Tax Return

Features and Benefits of Loans Against Property

Taking a loan against property can be a great way to get funds at low interest rates quickly. Let’s see some of the salient features and benefits of a LAP -

• Secured Loans

Since in a loan against property, the said property acts as collateral, this loan is considered to be a secured loan. These loans also come with longer repayment terms, sometimes spanning over decades, making repayment easier.

• Low Rates of Interest

LAPs have lower interest rates than unsecured loans, such as personal loans.

• Longer Repayment Terms 

Loans against property come with repayment terms that can extend up to 25 years or so, depending on the lending institution and your credit history.

• Retained Ownership

If you have pledged your asset for a loan against property, then the ownership of the said property will still be in your name even while you are repaying the loan.

• Loan Pre-closure

Depending on the type of interest rate chosen (variable or fixed), you may have the option to pre-close your loan without paying a penalty. However, this will completely depend on the lender.

Certain lenders do not add prepayment charges to the loan, which makes it a more economical option. 

• Easily Accessible

As loans against property are secured, they can be availed of quite easily without extensive verification processes or multiple documentation requirements. You don’t even require a high CIBIL score for it, as the lender has your property as security.

• Tax Benefits

Salaried applicants can enjoy tax benefits for a loan against property under Sec 24(B) if this loan is being used to fund their new house. However, if a loan against property is used for business purposes, the borrowers can claim tax benefits under Sec 37(1) of the Income Tax Act.

Types of Loans Against Property or Mortgage Loans

There are various types of loans against property available. The exact type might depend on your bank. Here are three common types of loans against property -

• Lease Rental Discounting

If you have property that you have leased, you can take a loan on it by showing rental receipts from corporate tenants. The rate of interest starts from approximately 11%.

• Overdraft Facility Against Property

This is an overdraft facility given to you against your property. It works like a line of credit, where a set amount is approved for you, and you can pay interest on the amount you use. 

• Reverse Mortgage Loan

This is a great option for senior citizens in need of funds. They can continue to live and hold ownership of their property while also getting funds using that property as collateral.

A loan against property is a great option if you need a large loan and have a property to put up as collateral. Since this loan is secured, the interest rates are relatively low, and the loan takes time to be disbursed.