One of the safest and most popular lending types among borrowers is a loan against property (LAP), also known as a mortgage loan. It is one of the secured loan options, allowing borrowers to keep their business or residential property as collateral. Here, if the borrower is unable to repay the loan with interest in the committed time frame, they forfeit the ownership of the property.
A loan against property (LAP) allows an individual to leverage an immovable asset to acquire finance for personal or corporate requirements without losing ownership of the property. This makes LAP a popular lending option for financing big-ticket loans or addressing cash flow imbalances, especially among property owners.
Factors That Affect LAP Interest Rates
Depending on the lender and their risk assessment of the borrower’s credit profile, as well the location and condition of the property in question, property loan interest rates might range from 8.35%* to 13.2%* per year. LAP interest rates may also differ depending on the size of the loan and the length of time the borrower chooses.
- Understanding CIBIL Score
The CIBIL or credit score is important in establishing mortgage loan eligibility and determining mortgage loan interest rates. A high credit score of 750 to 900 implies a high level of creditworthiness. When it comes to getting the greatest interest rates on loans, a credit score of 750 or above is preferred.
From the position of the lender, a low CIBIL score, on the other hand, identifies the applicant as a high-risk borrower. As a result, a higher interest rate may be offered to the borrower. Furthermore, if one’s credit score is far lower than the recommended level, the loan application may be turned down.
It is also important to note that lenders typically offer up to 70–75% of the property’s market value as a loan against the applicant’s property, based on the applicant’s repayment capacity, income, and the property to be mortgaged, among other factors. Applicants need to determine the market value of a property since lenders analyze a variety of factors such as the property’s location and age, as well as the surrounding infrastructure.
- Applicant’s Profile
The borrower’s or applicant’s portfolio, including the age, profession, residence, and monthly income may impact the loan against property interest rate. An older candidate who is only a few years away from retirement, for example, will be awarded a shorter tenor, resulting in higher EMIs. A person with less-than-ideal income consistency will also be charged higher interest rates for a loan against property.
- The Property in Question
The loan against property interest rate is, of course, influenced by the property to be mortgaged. This implies that the lender will assess the property’s nature – commercial or residential – as well as its age, location, value, and overall condition.
Residential and commercial buildings, for example, are valued differently and so have varying interest rates. Furthermore, as compared to an old, worn-out building, a high-priced house in excellent condition in a desirable location will command lower loan rates.
Benefits of LAP
- Quick Processing
The disbursement of a loan against property can take up to three weeks, as lenders evaluate all property-related papers and conduct a technical study to establish the property’s ownership and market worth before disbursing the loan. However, some leading lenders offer incredibly short turnaround times that make LAP the ideal solution for urgent financial needs. For instance, some lenders even offer disbursal in 72 hours from when you submit all necessary documents.
- Substantial savings in interest
Compared to other modes of unsecured financing, such as a personal loan, a loan against property comes with a relatively low interest rate. In other words, you get access to substantial funding at a reasonable cost.
Considering this, loan against property is an ideal solution for debt consolidation. One can avail of a LAP to pay off other smaller, high-interest loans, and repay the whole sum at a nominal loan against property interest rate.
- Comfortable repayment tenor
Most lenders provide loans against property repayment tenor of up to 18 years, which is significantly longer than other lending options such as gold loans, personal loans, and top-up home loans. The payback period for a gold loan can be up to three years, whereas a top-up house loan can be up to the remaining tenor of the underlying home loan. Personal loans typically have a shorter tenor, spanning from one to ten years for most lenders.
A shorter repayment tenor means larger EMIs but lower interest costs, whereas a longer repayment tenor means smaller EMIs but higher interest costs. As a result, while choosing a loan tenor, considering the borrower’s payback capacity and monthly commitment for important financial goals are equally required.
Eligibility to File a Loan Against Property
Individuals interested in applying for a loan against the property must meet the following qualifying criteria, which vary from one lender to another:
- The property that will be used to secure the loan must be located in India. Lenders typically give a list of cities/towns for which they consider LAP-eligible homes
- The applicant’s minimum age should be 25 years old, and their maximum age should not be more than 65–70 years old at the time of loan maturity
- Both salaried or self-employed workers with consistent sources of income can avail of finance under this loan type
- If self-employed, the applicant must have been in the same line of work for the previous 5 years
- There should be no ownership conflicts on the property in question; additionally, it must be registered in the borrower’s name with clear and legal titles
How to Apply for a Loan Against Property Online
- The borrower needs to fill the application form and submit the necessary documents
- After verification, the borrower will receive a loan offer; when the applicant agrees to the offer, the loan approval will be received
- The property is then evaluated by the lender’s representatives
- Once completed, the loan amount is credited to the borrower’s bank account
The Final Word
Depending on the applicant’s property, credit profile, and risk appetite, the interest rate, loan tenor, processing fee, and other terms of LAPs offered by various lenders might vary significantly. As a result, it’s critical to compare loan choices offered by as many lenders as possible before settling on one.
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