Loan Against Property: How to Get It, Top Bank Picks & Mistakes to Avoid

Introduction:

Ever thought about how your property can do more for you than just be one of your assets? With a Loan Against Property (LAP), you can unlock the untapped value of your property and use it as collateral to assist you in meeting your financial goals.

Whether it’s a health emergency, business expansion, college education, or debt consolidation, LAP can give you quick access to sizable funds without having to sell your properties. It gives you the freedom to pay for big bills and still keep your property.

LAP also offers flexibility in repayment, a low rate of interest, and an extended repayment duration, which makes it a shrewd option for a large range of financial needs. From planning your future to facing any unexpected problems, borrowing against your property can prove to be a good way to secure your future.

 

What is a Loan Against Property?

• A Loan Against Property (LAP) enables you to borrow the value of your property by giving it as security for raising money. With benefits like low interest rates and flexible repayment terms, LAP can prove to be an ideal financial decision. For obtaining a LAP, lenders typically verify parameters like property value, your credit score, and income.
• Various credit sources are available to loan borrowers. From secured to unsecured loan offerings, you can select one according to your preference. You can buy a loan against another property as a long process in which you will have to go through the documentation, KYC, and other formalities. If you are not in a position to apply for any of the aforementioned loans, you can opt for LAP, or a loan against property. If you are ready to learn about what a loan against property is and some of its benefits, let’s find out below.

 

How to Get a Loan Against Property

How to Apply for a Loan Against Property (LAP)

Step 1: Begin by providing some general information, such as your mobile number, loan amount, location of property, type of employment, etc.

Step 2: Compare and review existing offers from various lenders.

Step 3: Send your application and await a call from a loan specialist to proceed with the next steps.

 

Documents Required for Loan Against Property

Here’s a list of commonly required documents to process your LAP application:

1. Identity Proof

• PAN Card
• Passport
• Voter ID
• Driver’s License

 

2. Address Proof

• Electricity or Telephone Bill
• Ration Card
• Rental Agreement
• Passport
• Bank Passbook/Statement
• Driver’s License

 

3. Age Proof

• PAN Card
• Passport
• Any official certificate from a government authority

 

4. Income Proof

For Salaried Applicants:

• Latest salary slips
• Form 16
• Income Tax Returns (last 3 years)
• Investment proofs (if available)

For Self-Employed Applicants:

• ITR for the past 3 years
• Audited Profit & Loss Account and Balance Sheet
• Business license
• Proof of business premises

 

5. Property Documents

• Title deed and property chain documents
• Encumbrance certificate

Approved building plan (if applicable)

 

 

Loan Against Property: Basic Eligibility Criteria

Eligibility requirements may vary from lender to lender, but here are the general conditions you’ll need to meet:

• Residential Status: Indian Residents and NRIs
• Age Limit: 18 to 70 years
• Employment Type: Salaried or Self-Employed (Professional or Non-Professional)
• Minimum Monthly Income: ₹12,000
• Minimum Annual Income: ₹1.5 lakh
• Work Experience: Minimum 1 year with the current employer
• Credit Score: Ideally 700 or above
• Loan-to-Value (LTV) Ratio: Up to 85% of the property’s market value
• Eligible Property Types: Residential, commercial, and industrial properties (subject to age and condition of the property)

 

Top Benefits of Loan Against Property (LAP)

1. Lower Interest Rates
   Secured against property, LAP comes with lower interest rates compared to unsecured loans. The collateral reduces the lender’s risk, leading to more favorable terms and lower repayment costs.
2. Higher Loan Amounts
   By using your property as collateral, you can access a larger loan amount based on its market value, your credit profile, and the LTV ratio. This makes LAP ideal for meeting significant financial needs.
3. Flexible Repayment Tenure
   Choose a loan tenure that suits your financial situation, whether you want a quick payoff or prefer to spread payments over a longer period. There’s a repayment option for everyone.
4. Retain Property Ownership
   Unlike selling property, LAP allows you to continue living in or using your property while accessing the loan. You retain ownership while securing the funds you need.
5. Versatile Loan Uses
   Use the funds for a variety of needs-home improvements, education, medical expenses, business growth, or consolidating debt. LAP is a flexible financing option.
6. Partial Fund Disbursement
   With multiple disbursements, you can receive the loan in installments, optimizing cash flow and only paying interest on the amounts drawn. This structure reduces overall interest costs.
7. Long-Term Financial Planning
   LAP can be a strategic tool for long-term investments, like buying property or expanding a business. The income generated can help repay the loan and achieve your financial goals.
8. Tax Benefits
   Depending on how the loan is used, you may be eligible for tax benefits, such as deducting interest payments from your taxable income. Always check eligibility and conditions based on your circumstances.
9. Minimal Foreclosure Charges
   Some lenders offer minimal or no foreclosure charges if you repay the loan early, which can save you costs if you decide to settle your loan ahead of schedule.
10. Variety of Collateral Options
    LAP allows you to pledge various property types—residential, commercial, or industrial-as collateral, providing flexibility in securing a loan based on the property you own.

 

5 Errors to Avoid While Applying for LAP

Not Considering Interest Rates

Compare interest rates across different lenders to obtain the most cost-effective option and reduce your EMIs.

Ignoring the Loan Tenure

Don’t simply opt for a longer tenure. Go for a lesser tenure if possible, as it leads to smaller interest outgo.

Missing Out on the Loan Agreement

Be sure to read the loan agreement carefully and comprehend all terms and conditions before signing.

Overlooking Disbursal Time

LAPs are time-consuming since they involve property appraisal. Verify the anticipated disbursal period to match your financing requirements.

Overlooking Your Credit Score

Although LAP is collateral-based, your credit score does matter. A healthy score enhances your approval prospects and improves the terms of the loan.

 

Conclusion:

A loan against property (LAP) can be a great option when you require instant funds since it helps you leverage the value of your property. It helps release the equity locked in your home or business property, providing you with substantial financial support. You must proceed with caution with this option.

Prior to applying, ensure your loan application is well-prepared to enhance your chances of getting a nod. Take into account your property value, credit score, and repayment capacity. By so doing, you can maximize this financial opportunity without risking your long-term financial stability.