What are the Factors that Affect Your Loan Against Property

Introduction

A loan against property is a secured loan that is provided against a real estate asset that we possess. This loan is available for professional and business use. There are several factors that we must keep in mind when applying for a loan against property. The first thing we must consider while applying for a loan against property is eligibility. Lenders have different eligibility criteria when considering applicants for their loans.Apart from the eligibility, there are other factors that we must keep in mind while applying for a loan against property. In this blog, we will discuss such factors.

What are the factors to consider while applying for loan against property?

If we need a substantial amount of money without selling the property, the best way to access the funds is through mortgaging the property for a loan. To benefit from this kind of secured loan, here are a few factors that we must keep in mind. The amount: You can use any real estate property to avail loan against property. This real estate property can be a residential property or commercial property or Industrial property or even a vacant plot. The loan amount will be arrived based on the market value of the property and mostly ranges from 60%-70% of the property value based on other eligibility criteria and internal policies of the financial institutions. Interest rate: The next factor to consider while applying the loan against property is the rate of interest provided by the financier. Generally, a secured loan like LAP offers cost-effective interest rates. However, the rate of interest varies from lender to lender. We must be prudent enough in selecting the lender who provides the best rate if interest suiting to our requirements Tenure of loan Selecting a right tenure in always crucial when you apply and avail loan against property. Loan against property being a secured loan, lenders usually offer a longer repayment tenure which may extend till 15 years. Higher the repayment tenure, lower the EMI and vice Versa. One should prudently select the repayment tenure of the loan based on the cash flows. One should always be clear on the EMI that he can afford to pay prior to choosing the tenure in order to smoothly repay his EMIs. Though the longer tenure provides a cushion of lesser monthly EMI, by choosing a longer tenure, one ends up paying higher interest amount compared to a shorter tenure. Therefore, one should do basic research of both affordable EMI and interest that he might end paying prior to selection of loan tenure Tax benefits If you are a business person and borrowing the funds for business needs, by recording the interest on LAP in your financials might provide you a tax shield by lowering your profits which may result in paying lesser taxes. Charges Charges vary from financier to financier. We should be aware of the schedule of charges of the lender. We must be mindful of reading the terms and conditions prior to availing the loan. Monthly EMIs It is important to consider whether we have a stable income and the capacity to make the monthly instalments in time. It is crucial to assess our financial health before landing a loan against property.

What are the factors that affect the eligibility of availing a loan against property?

Here are the different factors that affect our eligibility while availing a loan against property. The property ownership must be in our name or with our blood relatives and they should also be willing to be a part of loan – ownership is a factor that lenders consider when considering an application. A stable income is another factor that influences the loan. The financier will check if we can repay the loan every month with the income we have. The financier will also check what sort of employment we hold – whether we are salaried or self-employed running a business. Each sector has its terms and conditions. The credit score is another factor that affects the possibility of availing a loan against property. Maintaining a healthy credit score is essential when considering applying for and availing a loan against a property. Higher the credit score, more the possibility for loan approvals. Financiers generally have a cut off CIBIL score of 650 and above for approving the application. Age is another factor that lenders will consider when we apply for a loan against property. As we discussed, LAP is provided with differential tenure with maximum tenure ranging to 15 years. Also, the source of income and repayment capacities will be assessed by the lenders prior to approval of loans. Having said that, if we are nearing our retirement, there is a fair chance of our loan application to be denied on account of dwindling source of income. In such situations, we can apply for a loan with a co-applicant who can be of an eligible age for availing a loan. Rejection of past loan applications The lender will also check whether we have been denied any loan by another lender in the past for various reasons. This could also pose a factor that affects the loan application.

What are the documents required to avail of a loan against property?

When we apply for a loan against property, there are several documents we must keep in handy. These documents include property papers for the property against which loan is applied, KYC documents, income proof and such. It is easier and smoother to apply and avail of the loan if all the papers are in place.

What is a pre-approved loan and how does it work?

A loan which is offered by the lender with scrutinization of basic information is known as pre-approved loan. The loan is offered mainly based on the credit score and existing banking relationship/ repayment track record. It is therefore very important that we maintain a healthy financial discipline.

Why is a loan against property is a better choice?

Loan against property is a better choice if we have a property in our name because it is a secured loan that is granted against our own property without transferring the ownership of the property. This means lower rate of interest and better deal when compared to an unsecured loan like personal loans.