Securing a Loan Against Property Made Easy

A loan against property (LAP) is a secured loan that financial institutions offer against a commercial or residential property. Whether you are salaried or self-employed, you can secure a loan against property as long as all the necessary documents are in place. Since lenders can repossess the pledged property in case you default and sell it to recover the loan amount, the risk involved for them is low, vis-a-vis unsecured loans. Hence, a LAP gets approved easily. The loan amount sanctioned is usually higher than other borrowing options too, since it is based on the property value. The loan can be used to meet a wide array of expenses – whether it is related to a new business, a grand wedding, higher education of children or emergencies. So, what do you need to know to secure a loan against property smoothly? Read on.

Are You Eligible for a LAP?

If you are salaried,

• You should be between the ages of 24 and 60 years. This may vary from lender to lender.
• Preferably employed with a company of repute, such as an MNC.
• A resident of India. Some lenders also limit loan applications to just a handful of cities.

If you are self-employed,
 

• You should be between the ages of 24 and 65 years. This may vary across lenders.
• Financial institutions prefer borrowers with a steady income for 6 months to 1 year leading to the loan application.
• Own property in India or be a resident.

Also Read: Loan Against Property For Businesses

How to Secure A Loan Against Your Property While Avoiding Pitfalls

• Loan against property interest rates: It goes without saying that you must compare multiple lenders to zero in on the most attractive interest rate. However, that should not be your only criteria. Go through other LAP terms and do a bit of research about the lenders before deciding who to go with. If your credit score is high, you can negotiate the interest rate better. Also, a low interest rate (usually happens when the tenure is long) does not necessarily imply a low interest cost, even if the EMI seems attractive. The longer your tenure, the large will be your total interest outgo, since the rate will compound over the years.
   
• Choose the repayment tenure carefully: If you can repay your loan quickly, avail a short repayment tenure. As mentioned above, this will also keep your total interest cost low and you will become debt-free faster. However, in case of LAP, long tenures are available as it is a secured form of loan, and you can go for the same if you want to pay EMIs affordably. Find out about prepayment terms and charges as well, in case you receive a large sum of money suddenly and want to pay off the loan sooner than expected. Many lenders impose penalties in case of early repayment. 

• Apply for an amount that you truly need: The loan amount that will finally get approved will depend on the lender’s assessment of your property, your income (or repayment capacity) and your need. So, yes, you should compare the loan to value ratios of different lenders and then decide on the one that gives you the maximum loan amount against your collateral. However, avoid availing a higher amount than what you really need, as it will simply add to your loan burden. Try to make as large a down payment as possible to reduce your loan burden further.

• Make sure your property is in good shape: A well-kept property with a clear ownership is more likely to get you a loan rather than a property that is dilapidated, needs repairs or is in the middle of a legal dispute. So, make sure that all papers are in order and the condition of the property is decent too. This will ensure fast loan processing and sanction. It will help you secure a high loan to value ratio at an affordable interest rate as well. 

• Check the loan agreement closely: Go through your loan agreement thoroughly. Make sure there are no hidden costs, penalties or other adverse clauses that may hurt you in the future. Find out what happens in case your EMI cheque bounces, or you miss a payment. Many lenders tend to charge you a higher rate of interest in case you default or miss multiple payments. So, find out about that as well.

• The disbursal time: The time it takes for your loan to be processed differs from lender to lender. Make sure the disbursal time suits your timeline by when you will have to meet your expenses. Also, ensuring correct documentation at your end will make the process easy.

Also Read: Loan Against Property vs. Personal Loan

Documents Required to Apply for a LAP

The loan against property documents required vary for self-employed and salaried applicants.

Self-employed borrowers must provide –
 

• Income-proof: Documents that prove that the business is at least 5 years old, account statements, tax audit report and ITR.
• Identity proof: Government employee ID, driving license, Aadhaar card, PAN Card, Voter ID and Passport.
• Date of Birth proof: Driving License, SSC mark sheet, birth certificate, Aadhaar Card
• Address proof: Gas bill, property tax receipt, telephone bill, electricity bill, or voter ID.
   

Salaried borrowers must provide –
 

• Income proof: Pay slips, Form 16 and account statements.
• Identity/DoB/address/signature proof: Same as self-employed.  

A loan against property is a useful financial instrument that allows borrowers to meet large expenses by taking calculated risks. If you own a property, you can pursue your ambitious dreams with a LAP, without the fear of going bankrupt. All you have to do is keep this guide handy, do your research, and make an informed decision.