Loan against property: The concept made easy!
Whether you are planning to send your child overseas for higher education or starting your own business unit or there is a wedding on the cards? the first thought that crosses your mind is about organizing the funds, right? Yes, each one of us would like to pride ourselves with infinite energy and wherewithal to be the provider of the family, sometimes it is a struggle to carry the load alone. So, what are the options to go around? Borrowing from friends or relatives, a loan from the employer or taking a loan from either an informal moneylender or from a formal financial institution. The choice often depends on various factors such as strength of the relationship/personal equation, adequacy of terms and conditions of the arrangement, interest rate, ability to raise a grievance and taking care of the repayment in a stress-free manner, among other things. While there are numerous ways for arranging the funds, and in many cases, a combination of these options may be an optimum one, a comparison of the parameters as above may be required before taking a final decision.
| Parameter| Source | Relative / Friend | Loan from Employer | Moneylender | Loan against Property from Bank/FI |
| Type of arrangement | Informal | Partly Formal | Partly Formal | Formal |
| Strength of relationship | High | Medium | Low-Medium | Medium-High |
| Fairness of Terms & Conditions | Low | Low-Medium | Low-Medium | High |
| Transparency of Interest Rates/Fee | Low | Low | Low | High |
| Grievance Management | Low | Low | Low | High |
| Chances of Collateral Damage of relationship etc. | Unpredictable – dependent on personal terms | Unpredictable – dependent on personal terms | Unpredictable – dependent on personal terms | Predictable |
While borrowing from an informal/partly formal source such as relative/friend or a moneylender relies heavily on the strength of the personal equation, it has a high potential for running into rough weather during tenure of the loan, often leading to loss of relationship, reputation and potentially legal tussles. On the other hand, a formal source such as a bank or a financial institution, usually tends to be transparent, consistent, and predictable. Such loans are easily available against assets such as Gold, shares, vehicle, immovable property, and receivables etc.
In this article we have listed down some important factors to help you appreciate the nuances and make a more informed choice!
What is a loan against Property?
A Loan against Property (LAP) is a credit provided against the mortgage of a property, both residential and commercial. The loan is given as a specific percentage of the estimated market worth of the property and is known as Loan to Value Ratio (LTV). Loan against Property is categorised as a secured loan from the Lender’s perspective, whereby the borrower offers the property as a security through formal, legal documentation.
What are the most common purposes for loan against property?
Some of the reasons include:
- Expansion of business
- Marriage
- Higher Education
- Medical treatment
What type of properties that can be mortgaged?
Generally, one can take a loan against self-occupied or leased private residential property. This could be a house or even a piece of land.
Understanding the eligibility criteria!
This criteria will vary from bank to bank. In general, the common criteria that all banks seek are as follows:
- Income, savings, debt obligations
- Cost/value of the property
- Credit Score/History, Payment Track Record of other loans, etc.
What are the interest rates and tenure for repayment offered for a loan against property?
Depending on the type/location of property, legal title, borrower profile, credit history, income, etc, Interest rates on loan against property range from 12 per cent to 30 per cent, and the loan tenure can vary from 5 years upwards and may extend up to 25 years.
Required Documentation Banks and financial institutions normally require the below mentioned documents, although the list can vary from bank to bank:
| Documents | Salaried | Self Employed Professionals | Self Employed Businessman |
| Application form | √ | √ | √ |
| Photograph | √ | √ | √ |
| Identity Proof | √ | √ | √ |
| Residential Proof | √ | √ | √ |
| Income proof | √ | √ | √ |
| Other important documents | √ | √ | √ |
| Processing fee cheque | √ | √ | √ |
| Bank Statement | √ | √ | √ |
| Other important documents | Salaried | Self Employed Professionals | Self Employed Businessman |
| Income Proof | Form 16 | Last 3 years Income Tax returns (self and business) and Last 3 years Profit /Loss and Balance Sheet | Business profile and Last 3 years Profit /Loss and Balance Sheet |
| Other important documents | Latest Salary-slips | Education Qualifications Certificate and Proof of business existence | Education Qualifications Certificate and Proof of business existence |
A Loan against Property is among the most optimum approaches to raise funds. While it has advantages in that it is a transparent product with predictable terms and conditions, the key downside of such a loan is, that in case of default, the bank or the financial institution may claim the mortgaged property or take further legal action. However, banks and FIs are required to do so within a regulatory framework.
Make a decision based on repayment capabilities, because “It’s all about You”!
Fincare Small Finance Bank, a new-age digital bank, and offers a refreshing Loan against Property product giving you the power of choice.
With minimal documentation, competitive interest rates, easy repayments, quick processing, and excellent customer service, you receive crafted solutions which are designed keeping your per-requisites in mind.
Connect with us on 1800 313 313 to know more about our suite of customer-friendly products and services.
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