Everything about Loan Against Property or Collateral Loan

We all are well versed with the concept of personal loan and how it helps in meeting short term financial obligations during financial emergencies. But, what can you do, when the requirement is for a larger amount and a personal loan cannot fulfil the requirement?

In such a situation, one of the best options is to apply for a loan against property. Like a personal loan, a loan against property can be availed for meeting any of your financial obligations and comes with attractive interest rates and favourable terms.

Let’s understand the concept of a loan against property.

What is Loan Against Property?

As it sounds, a loan against property is a secured loan that can be availed by pledging any commercial or residential property which the borrower owns as collateral with the lender.

Most lenders offer up to 70% (for commercial property, 60% if the property is residential) of the market value of the property, which is kept as collateral against the loan amount. As the loan is secured against a property, the loan approval process takes longer than that for an unsecured loan, since the lender will also need to evaluate the property.

LAP is very similar to a personal loan, where lenders don’t put any restriction on the borrower on the usage of the loan amount. Therefore, the fund can be used for any purpose like funding your child’s education, marriage, medical costs, business expansion, etc.

Advantages of Loan Against Property

The following are the advantages of a loan against property:

Higher loan amount: A loan against property has a loan-to-value ratio of up to 75%, which allows borrowers to take a higher loan amount that what they would be able to get through an unsecured loan.

Attractive interest rates: As the loan amount is secured, the loan against property interest rates are lower compared to unsecured loans such as a personal loan. Further, if you have a good credit score and income, you can negotiate good terms on the loan and LAP interest rates.

Longer repayment tenure: As compared to a personal loan, which has a maximum loan repayment tenure of 60 months, LAP has a repayment tenor of up to 15 years.

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Lower EMIs: You have the flexibility to opt for a longer repayment tenor, which will help to lower the EMIs. This makes it easier for borrowers to repay the loan without straining their finances.

Accessibility: A loan against property can be availed by salaried, self-employed, and business professionals.

Continued usage of property: In a loan against property, the ownership of the property is not transferred to the lender. Only the rights of the property are transferred to the lender, in which the lender will have the full rights to sell the property in case the borrower fails to repay the loan. Therefore, you can continue to use the property as earlier and generate income through means like rent or leasing out the property, if it is a commercial property

Pay interest only on the loan amount you have availed: You need to pay interest on the loan amount you have availed against the approved loan amount by the lender. In other words, you can avail of the loan amount in multiple tranches as per requirement and pay interest on the sum disbursed. However, do check with your lender if such a thing is possible, since different lenders have different policies.

Loan Against Property Eligibility

To avail of a loan against property with Grihashakti, you need to fulfil the following eligibility criteria:

• The age of the borrower must be between 21 to 60 years
• Should be resident of India
• Should have a good credit score, of at least 700
• The property to be mortgaged should be undisputed, un-mortgaged s and solely owned by the applicant.
• Should have a minimum salary of INR 20,000 per month (INR 25,000 for metro cities)
• Self employed applicants must meet the minimum criteria for yearly profit after taxes

Documents Required

• All KYC documents
• Income tax return for last 2 years
• If salaried, 3 months salary slips and Form 16
• If self-employed or owner of SME, audited business financials
• Last 6 months bank account statements
• All documents related to the property to be mortgaged

How to Select the Right LAP Tenor?

Selecting the right LAP tenor is very important so that you strike the perfect balance between paying out the least possible overall interest and a suitable EMI which wouldn’t strain your budget

For this purpose, you can use our online loan against property calculator to plan your loan tenure.

Must Read : Looking for larger funding? A LAP can be your Ideal Choice

As compared to any other financing option, a loan against property provides flexibility to effectively manage your fund crunch. With attractive LAP interest rates, longer repayment tenure, and other benefits, you can greatly reduce the impact of the loan on your finances. Apply today for a LAP at SMFG Grihashakti and speak to our representative.