The term Loan against Property refers to a mortgage loan, which you can avail by pledging your property as security or collateral. Such a loan can be availed by an individual, or a business, against existing property as collateral. The mortgage property could be your home, land, industrial building, shop, or any other kind of landed estate. Most banks and NBFCs offer loans against property as multi-purpose secured loans. You can obtain funds of up to 60% to 80% of the market value of your property.
Loans against property typically offered at lower interest rates as compared to personal loans or business loans and disbursed within a reasonable period. The fact that you mortgage your property does not mean that you don't own your property. In fact, you may continue to use the mortgaged property for residential or commercial purposes. When you apply for a loan against property, you are required to meet several requirements, including minimum credit scores, and down payments. Your application then goes through a rigorous screen process before approval and disbursal.
A loan against property allows you to manage your cash flows effectively, since the costs of borrowing are minimal. The loan backed by collateral has cheaper implications, making such kind of funds economical to borrow. Being multi-purpose borrowings there are no restrictions on end-usage, which gives you the advantage of flexibility, backed by low interest rates.
Loans against property are secured loans, where you pledge your property as security against non-payment or default. The risk being considerably lowered due to the collateral, the rate of interest you are offered will be lower than most personal loans.
Most banks and NBFCs prefer not to charge prepayment penalties on loans against property when you consider to close your loan against property by prepaying your loan before the term of your loan ends.
Most banks and NBFCs offer loans against property for longer tenures than the tenures offered for personal loans. LAP tenure could go up to 15 years, compared to personal loans that are offered for up to 7 years.
A loan tenure has an inverse relationship with Equated Monthly Instalments, in the sense that shorter the period of the loan, higher the EMI, and longer the loan tenure, lower the EMI. That also means, larger the interest outgoings on a longer period loan, and lesser the interest outgoings on a short period LAP.
Loans against property are secured loans, which are secured by collateral, and as such are lower risk loans, and hence most banks and NBFCs are more than willing to provide loans against property, hassle-free.
You can avail a Loan against property to the tune of 60% to 80% of the market value of your property. However, the maximum amount you can avail as a LAP depends on your employment status.
As a salaried person, you can avail a loan against property to the tune of 60 times your net monthly income. The lender pegs your limit of borrowing at Rs. 1 Crore.
Generally lenders can advance you a sum of Rs. 3.5 Crore if you are a self employed person with verified credentials.
When you apply for a LAP, you need to submit documents as proof of your eligibility for approval. Unlike other loans, you don't need to submit income proof. Here's a generic list of required documents for a loan against property.
Filled and signed Application Form
A loan against property can be used for many purposes including big-ticket expenses.
You can avail a loan against property for a period of up to 15 years.