Loan against Property

The need for monetary assistance on a day-to-day basis is increasing rapidly. People are seeking out daily solutions to manage their conditions and feel financially empowered within themselves. Providers have devised various schemes to help people with these issues. One such category of these assistance plans is loan against property. This blog will entail all the relevant information about these loans to help you gain a better understanding. 

What is a loan against property? 

A loan against property, popularly abbreviated as LAP, is a secured loan offered by banks and finance companies. The functioning of this facility is as simple as its name - you get a loan against the value of your property. The mutual agreement between the borrower and lender decides the amount, ROI,and repayment tenure. You are granted a loan on a mortgage basis, giving your lender the right to take possession of your property in the event of repayment failure. 

You can pledge any property as collateral when availing of a loan against property. It can be a flat, a house, or commercial property. This facility is flexible in accommodating many facilities for sanctioning a loan. However, you can not claim loans against a rented property. Proof of ownership over the property is required to register for a loan. 

The money acquired from this loan can be used for numerous personal or commercial purposes. The loan allows user discretion to utilise their money in any way they find suitable. 

Types

Loans against properties can be availed under numerous reasons and types. In India, you can find the following types of loans. 

Based on the property type

• Loan against residential property: Your loan gets sanctioned against the property(s) you reside in or have on rent for others’ residential convenience.  
• Loan against commercial property: Under this category, you can avail of a loan against your shop, factory, office, or any type of estate used for commercial purposes. 
• Lease rental discounting: This is an unusual yet reliable method of loan sanctioning. The rental receipts from your owned properties are used as collateral for providing loans. 

Based on the borrower’s employment type

• Loan against property for salaried employees: Special loan plans are available for government/private employees with a minimum of 1.5 years of experience.  
• Loan against property for self-employed individuals: Self-employed workers with more than five years of business continuity can easily apply for a loan against their properties. 

Based on usage

• Loan against property for education: With a considerable loan, you can fund yourself for quality higher qualifications or sponsor your children’s education.  
• Loan against property for wedding: Planning a dream wedding can end up costing a fortune. With safe financial assistance, you can make your day memorable and fun. 
• Loan against property for renovation: If you are looking to improve the quality of your home, you need adequate funds. 
• Loan against property for debt consolidation: Get rid of pre-owned debts and liabilities by seeking additional financial support.  
• Loan against property for medical emergencies: Fight the inflated rates of medical help and keep your loved ones safe through efficient monetary assistance. 

Benefits 

Loans against property are becoming a preferable way of money acquisition compared to other types of loans. The reason for this increasing popularity is the variety of user-centric benefits. Let us take a detailed look at some of these advantageous perks.  

• The repayment tenure can stretch up to as long as 15-18 years. 
• You can find comparatively lower rates of interest when taking loans against properties. 
• The amount of loan granted can be immensely rewarding, going up to as high as 60% to 80% of your property’s worth.
• You can continue to use your property at your convenience even when availing loans under a mortgage. 
• Under Section 37(1) and Section 24(B) of the Income Tax Act, you may be eligible for tax benefits when utilising this loan for certain purposes.
• The approval process is relatively quick and convenient, as the lenders have a firm guarantee for their credit. 
• The documentation process is less complex and easy to ensure speedy processes.  

Is a loan against property the same thing as a home loan?

Many people face confusion when understanding the difference between home loans and loans against property. While they may seem like the same thing from an overview, there is a significant difference between the two. 

A home loan is a sum of money borrowed from a certified lender with the purpose of home-centric expenses. This may include buying or constructing a new home and doing major renovations, among other functions. Under a loan against property, you get money against keeping your estate as a security.

The sum granted under a home loan is intended to be used for home-related expenditures. On the other hand, the sum coming from a loan against property can be utilised in any way a user pleases. 

A notable difference between the two can also be based on their tax-related benefits. Under a home loan, there is a provision for a tax deduction. On the other hand, loans against property don’t offer as many tax privileges.  

Loan against property schemes across different providers 

Eligibility criteria 

The criteria for loan eligibility differs for each institution based on its rules. However, a few generalised factors are necessary for attaining a loan against property. Below, we have listed the basic criteria for eligibility for securing a loan against property. 

• Indian citizenship with a permanent residence 
• Must fall in the age range of 25-70
• A credit score of 700 or higher 
• Proof of the annual income being 1.8 LPA 
• Documents proving your ownership over the mortgaged property 

Things to keep in mind when availing loan against property 

Taking any loan is a major decision that mustn’t be taken hastily. There are a number of factors and aspects that must be evaluated closely before adopting a suitable plan. If you are applying for a loan against property, you must be considerate of the following aspects. 

• Do not neglect the processing fee and how much it is charged against your name. While this charge is only 1-2% of the loan’s sum, it can create a huge difference in your overall credit score. 
• It is essential to get an estimate of the money required before applying for a loan. Doing this helps you avoid complications and get financial aid for just what you need. 
• Your application may be rejected if the borrower finds loopholes in the property’s ownership status. Hence it is crucial to maintain the proper documentation of your liabilities. 
• Decide the repayment tenure and monthly repayment amounts according to your capacity. If you are unable to pay back on time, it poses a danger to the security of your properties. 
• It isn’t advisable to opt for the first plan you come across. Be thorough in conducting full-fledged market research and compare your available options to make an informed choice. 

With that, we have covered all the basic highlighting details about loans against property. If you are still confused or need more specific details, remember to reach out to our Credvisors. We are available to assist you through your financial planning and offer conveniently personalised solutions.