Loan against property is a type of secured loan wherein you pledge your residential or commercial property as collateral to a financial institution in exchange for a loan. It can help an individual take care of their financial needs and higher the value of the collateral, higher the amount that will be sanctioned. As long as the property is in your name, you can get a loan. In case the property to be offered as collateral is disputed, the chances for the application being rejected is high.
Types of Loan Against Property
There are various kinds of loans against property. On the basis of the uses and features, you can get the following loan options-
Loan against commercial or residential property
It is a regular mortgage loan that is offered by the lenders when you pledge your residential or commercial property. The loan amount offered depends on the market value of the property.
Loan Against Property Balance Transfer
This type of loan can be used if you find a better loan offering. This option helps you to manage your finances better with lower loan against property interest rates.
Loan against Property Top-up
This top-up option allows you to get an additional loan above the existing loan against property. The loan is offered at a very nominal interest rate and the fund can be used in any form that you wish.
There are also other types of loan against property such as those that are curated specially for chartered accountants, doctors, self-employed people, for weddings, for education, debt renovation and home renovation.
Benefits of Loan against Property
Loan against property is a popular choice for businesses who want to address their cash flow issues or individuals who are looking for a loan to deal with a financial constraint.
Some of key benefits of loan against property are mentioned below-
Loan against property is considerably easier to get as the lender has a collateral for the money that they are offering. A straight-forward and hassle-free approval process makes it a preferred option among individuals looking for a loan.
Longer repayment tenor
A longer repayment period means that the EMIs are spread out for a longer period hence the monthly installment is lesser. This helps with easy repayment without affecting your monthly budget.
Since loan against property is a secured type of loan, it comes with lower interest rates as compared to something like personal loans which is usually unsecured. The loan against property interest rates offered could differ between a commercial and residential property.
The debtor still retains the ownership of the property when using the funds that are sanctioned against the property. It allows the debtors to unlock the value of the property he/she owns while still using the property during the tenor of the loan.
Tips for Loan Against Property
Loan against property can be utilised for various purposes from going on a vacation to taking care of unexpected medical emergencies. There are some important tips to keep in mind before applying for a loan against property. Some of them are:
Assess your eligibility for the loan
The eligibility criteria for loan against property can differ for different lenders. One key advice to keep in mind is to evaluate your eligibility based on the criteria set by different banks and non-banking financial companies.
Evaluate your repayment capability
Monthly income of the debtor is one of the important parameters considered while assessing their repayment ability. Ideally, the monthly installment should not exceed 50% of the monthly income to make repayment easy.
Documentation must be proper
One of the major factors to make sure that your loan application is accepted by the lender is to provide documentation that is proper and error free. Documents are required to make sure the property against which the loan is taken belongs to the borrower. The lender verifies these documents to evaluate the value of the collateral property.
Make sure you have a good credit score
A good credit score greatly increases the chances of loan approval and can even help you in getting a lower loan against property interest rate. It is mandatory to check your credit score before applying for a loan against property. A good credit score increases your creditworthiness and instills confidence in the borrower.
The bottom line is that loan against property is a great choice to consider when you are looking for ways to finance your business and personal fund requirements. Various benefits such as longer repayment tenors, loan amount and lower loan against property interest rates make it a better option than personal loans. However, keep in mind that repayment defaulting can greatly affect your credit score and can cause legal issues.
Courtesy - India Blooms
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